A.

General Principles

CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES CIR v. Cebu P r!lan" Ce#en! C . The Court of Tax Appeals ordered the Commission of Internal Revenue (CIR) to refund to Cebu Portland Cement Co. about P350 !" #$% represented overpa&ments of ad valorem taxes on %ement produ%ed and sold b& it. CIR opposed the rulin'" %laimin' that it had a ri'ht to appl& the overpa&ment to another tax liabilit& of Cebu Portland ( sales tax on a manufa%tured produ%t (the %ement). CIR said that %ement is a manufa%tured and )*T a mineral produ%t and therefore )*T exempt from sales taxes. (mineral + exempt, manufa%tured + not exempt) *n the other hand" Cebu Portland said that it is exempt from sales tax under the Tax Code be%ause %ement is a mineral produ%t and )*T a manufa%tured produ%t. Court of Tax Appeals held that the alle'ed sales tax liabilit& of Cebu Portland #as still bein' -uestioned and therefore %ould not be set.off a'ainst the refund. A petition for revie# #as filed b& CIR. I/ 0$n CIR must refund the overpa&ment of the ad valorem tax R/ )*. CIR has the ri'ht to appl& the overpa&ment to Cebu Portland1s sales tax defi%ien%&. The sales tax #as properl& imposed upon the %ompan& for the reason that %ement has al#a&s been %onsidered a manufa%tured produ%t and )*T a mineral produ%t. (CIR v Republi% Cement) o Cement #as never %onsidered a mineral produ%t #$in the meanin' of the Tax Code" despite it bein' %omposed of 203 mineral" be%ause %ement is a PR*45CT of the manufa%turin' pro%ess. o Relian%e %annot be made on Cebu Portland v CIR sa&in' that %ement + mineral be%ause this %ase has been overruled. The ar'ument that the assessment %annot as &et be enfor%ed be%ause it is still bein' %ontested loses si'ht of the ur'en%& of the need to %olle%t taxes as 6the lifeblood of the 'overnment.7 If the pa&ment of taxes %ould be postponed b& simpl& -uestionin' their validit&" the 'overnment #ould be paral&8ed. Thus" !$e Ta% C "e pr vi"es !$a! n c ur! s$all $ave au!$ ri!& ! 'ran! an in(unc!i n r res!rain !$e c llec!i n ) !a%es, except #hen in the opinion of the Court of Tax Appeals" the %olle%tion b& the 9IR or the 9ureau of Customs ma& (e par"i*e !$e in!eres! ) !$e G vern#en! an"+ r !$e !a%pa&er . o In su%h a %ase" the Court" at an& sta'e of the pro%eedin' ma& suspend the %olle%tion and re-uire the taxpa&er to either/ :. "ep si! !$e a# un! %laimed *R ;. )ile a sure!& b n" for not more than double the amount #ith the Court. The ex%eption does not appl& in this %ase. In fa%t" there is all the more reason to enfor%e the rule 'iven that even after %reditin' of the refund a'ainst the tax defi%ien%&" a balan%e of more than P< million #as still due from the %ompan&. To re-uire the Commissioner to a%tuall& refund to the %ompan& the amount of the =ud'ment debt" #hi%h he #ill later have the ri'ht to distrain for pa&ment of its sales tax liabilit& is an idle ritual. C ##issi ner ) In!ernal Revenue v. Al'ue

The Phil. >u'ar ?state 4evelopment Compan& (P>?4C) appointed Al'ue" In%." a famil& %orporation" as its a'ent" authori8in' it to sell its land" fa%tories" and oil manufa%turin' pro%ess. Pursuant to this authorit&" five members of the famil& %orporation formed the @e'etable *il Investment Corp. and indu%ed other persons to invest in it. The ne#l& formed %orporation then pur%hased the P>?4C properties. Aor this sale" P>?4C 'ave Al'ue" In%. a %ommission of P:;5"000. Arom this amount" Al'ue In%. paid the five famil& members PB5"000 as promotional fees. Al'ue" In%. de%lared this PB5"000 as a dedu%tion from its in%ome tax as a le'itimate business expense. The CIR -uestioned the dedu%tion" %laimin' that it #as not an ordinar&" reasonable" or ne%essar& expense and #as merel& an attempt to evade pa&ment of taxes. I/ 0$n the PB5"000 is tax.dedu%tible as a le'itimate business expense of Al'ue" In%. R/ Ces" the PB5"000 promotional fee is tax.dedu%tible. >e%. 30 of the Tax Code provides that ordinar& and ne%essar& expenses in%urred durin' the taxable &ear in %arr&in' on an& trade or business" in%ludin' a reasonable allo#an%e for salaries or other %ompensation for personal servi%es a%tuall& rendered are tax.dedu%tible. Do#ever" the burden in provin' the validit& of a %laimed dedu%tion belon's to the taxpa&er. In this %ase" the burden has been satisfa%toril& dis%har'ed b& the taxpa&er Al'ue" In%. Al'ue" In%. #as able to prove that the promotional fees #ere not fi%titious and #ere in fa%t paid periodi%all& to the five famil& members. Eoreover" the amount of the promotional fees #as reasonable" %onsiderin' that the five pa&ees a%tuall& performed a servi%e for Al'ue" In%. b& ma in' the sale of the properties of P>?4C possible. As a result of this sale" Al'ue" In%. earned a net %ommission of P50"000. Taxes are #hat #e pa& for %ivili8ed so%iet&. 0ithout taxes" the 'overnment #ould be paral&8ed for la% of the motive po#er to a%tivate and operate it. Den%e" despite the natural relu%tan%e to surrender part of one1s hard.earned in%ome" ever& person #ho is able to must %ontribute his share in runnin' the 'overnment. The 'overnment" for its part" is expe%ted to respond in the form of 9?)?AIT> for 'eneral #elfare. This s&#bi !ic rela!i ns$ip is !$e ra!i nale ) !a%a!i n and should dispel the erroneous notion that it is an arbitrar& exa%tion b& those in the seat of po#er. Do#ever" it should also be exer%ised reasonabl& and in a%%ordan%e #ith the pres%ribed pro%edure. If it is not" the taxpa&er has a ri'ht to %omplain to the %ourts.

C.N. H "'es v. ,unicipal - ar" ) Il il The Euni%ipal 9oard of Iloilo ena%ted *rdinan%e )o. 33 pursuant to the Fo%al Autonom& A%t #$%/ o re-uired persons" firms" asso%s and %orps to pa& a sales tax of :$; of :3 of the sellin' pri%e of an& motor vehi%le A)4 o prohibited the re'istration of the sale of the motor vehi%le unless the tax had been paid

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Dod'es" #ho #as en'a'ed in the bu&in' and sellin' of se%ond.hand motors" -uestioned the validit& of the tax for havin' been ena%ted in ex%ess of authorit&. I/ 0$n the tax is valid. R/ C?>" the tax is valid. The Fo%al Autonom& A%t 'ives muni%ipal boards the authorit& to ena%t ordinan%es for the %olle%tion of taxes on an& person en'a'es in an& o%%upation or business. Do#ever" the FAA prohibits %hartered %ities" su%h as Iloilo from imposin' a tax on the re'istration of motor vehi%les. Thus" the lo#er %ourt ruled that to re-uire pa&ment of sales tax before re'istration is tantamount to imposin' a tax for the re'istration of motor vehi%les. D*0?@?R" the >C disa'reed #ith this" sa&in' that the tax imposed #as merel& a %oer%ive measure to ma e the enfor%ement of the %ontemplated sales tax more effe%tive. Taxes are imposed for the >5PP*RT of the 'overnment in return for the 'eneral advanta'e and prote%tion #hi%h the 'overnment affords to taxpa&ers and their propert&. Taxes are the lifeblood of the 'overnment. The po#er to tax in%ludes the po#er to devise #a&s and means to a%%omplish tax %olle%tion in the most effe%tive manner. *ther#ise" 'ov ma& falter $ fail. Thus" the ordinan%e is a @AFI4 exer%ise of the po#er of taxation 'ranted to Iloilo Cit& b& the FAA.

Thus" it is a%tuall& a li%ense fee under the 'uise of an ad valorem tax to %ir%umvent the prohibition imposed b& the Eotor @ehi%les Fa#. The reason for the prohibition is that under the Eotor @ehi%les Fa#" muni%ipal %orporations alread& 'et pro%eeds for the purpose of repairin' and maintainin' their streets and brid'es. The prohibition aims at preventin' a dupli%ation in the imposition of fees for the same purpose. ;) The ordinan%e infrin'es on the rule of uniformit& of taxation be%ause it exa%ts the tax upon AFF motor vehi%les operatin' #ithin the Cit& of Eanila" #ithout distin'uishin' bet#een those for hire and for private use" those re'istered in and those re'istered outside but o%%asionall& %ome to Eanila. The ordinan%e imposes the tax onl& on those vehi%les re'istered in Eanila" even if those vehi%les #hi%h are re'istered outside the %it& but #hi%h use its streets also %ontribute e-uall& to the deterioration of the roads and brid'es.

C.ASSIFICATIONS AND DISTINCTIONS Ass cia!i n ) Cus! #s -r /ers Inc. v. ,unicipal - ar" The Euni%ipal 9oard of Eanila passed an ordinan%e lev&in' a propert& tax on all motor vehi%les operatin' #ithin the Cit& of Eanila. The ordinan%e provided that the rate of the tax #ould be :3 ad valorem per annum" and that the pro%eeds of the tax shall a%%rue to the >treets and 9rid'es Aunds of the Cit&" #$% #ill be used for the repair" maintenan%e" and improvement of its streets and brid'es. The Charter of Eanila 'ives the muni%ipal board the po#er to tax motor vehi%les" but this is limited b& the Eotor @ehi%les Fa#" #hi%h disallo#s the imposition of fees on motor vehi%les" ?GC?PT propert& taxes imposed b& a muni%ipal %orp. TD5>" the la# allo#s the Cit& of Eanila to impose a propert& tax on motor vehi%les operatin' #ithin its limits. Do#ever" the Asso%iation of Customs 9ro ers %ontended that the ordinan%e is void be%ause it a%tuall& imposes a li%ense tax in the 'uise of a propert& tax. I/ 0$n ordinan%e is valid R/ )o" it is void. :) It imposes a li%ense tax" #hi%h the muni%ipal %orporation ma& not impose" althou'h it is made to appear as a propert& tax$ As a rule" an ad valorem tax is a propert& tax. Do#ever" if the tax is reall& imposed upon the performan%e of an a%t" en=o&ment of a privile'e" or the en'a'in' in an o%%upation" it #ill be %onsidered an ?GCI>?" even if its amount is determined in proportion to the value of the propert& used in %onne%tion #ith the o%%upation" privile'e" or a%t #hi%h is taxed. In this %ase" the tax is fixed ad valorem. 95T" the purpose is to raise funds for the repair" maintenan%e" and improvement of the streets and brid'es in the %it&.

Ess S!an"ar" Eas!ern Inc. v. CIR ?>>* dedu%ted from its 'ross in%ome for :H5H" as part of its ordinar& and ne%essar& business expenses" the amount it had spent for drillin' and exploration of its petroleum %on%essions. The Commissioner on Internal Revenue (CIR) disallo#ed the %laim on the 'round that the expenses should be %apitali8ed and mi'ht be #ritten off as a loss onl& #hen a 6dr& hole7 should result. Den%e" ?>>* filed an amended return #here it as ed for the refund of P3;3";B0 b& reason of its abandonment" as dr& holes" of several of its oil #ells. It also %laimed as ordinar& and ne%essar& expenses in the same return amount representin' mar'in fees it had paid to the Central 9an on its profit remittan%es to its )e# Cor *ffi%e. I/ 0$n the mar'in fees are taxes *R ne%essar& expenses #hi%h are dedu%tible from its 'ross in%ome R/ )o" the& are neither taxes nor ne%essar& expenses. :) Ear'in fees are )*T taxes be%ause the& are )*T imposed as a revenue measure but as a police measure #hose pro%eeds are applied to stren'then the %ountr&1s international reserves. Thus" the fee #as imposed b& the >tate in the exer%ise of its P*FIC? P*0?R and )*T taxation po#er. ;) )either are the& ne%essar& and ordinar& business expenses. An expense is %onsidered )?C?>>ARC #here the expenditure is helpful in the development of the taxpa&er1s business. It is *R4I)ARC #hen it %onnotes a pa&ment #hi%h is normal in relation to the business of the taxpa&er and the surroundin' %ir%umstan%es. The expenditure bein' ordinar& and ne%essar& is determined based on its nature ( the extent and permanen%& of the #or a%%omplished b& the expenditure. In this %ase" ?>>* #as unable to sho# that the remittan%e to the head offi%e of part of its profits #as made in furtheran%e of its o#n trade or business. It merel& presumed that all %orporate expenses are ne%essar& and appropriate in the absen%e of a sho#in' that the& are ille'al or ultra vires, #hi%h is erroneous. Claims for dedu%tions are a matter of le'islative 'ra%e and do not turn on mere e-uitable %onsiderations. Pr 'ressive Devel p#en! C rp. v. 0C The Cit& Coun%il of IC passed an ordinan%e no#n as the Ear et Code of IC" #hi%h imposed a 53 supervision fee on 'ross re%eipts on rentals or lease of privatel&.o#ned mar et spa%es in IC.

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In %ase of failure of the o#ners of the mar et spa%es to pa& the tax for three %onse%utive months" the Cit& shall revo e the permit of the privatel&.o#ned mar et to operate. Pro'ressive 4evelopment Corp" o#ner and operator of Aarmer1s Ear et" filed a petition for prohibition a'ainst IC on the 'round that the tax imposed b& the Ear et Code #as in realit& a tax on in%ome" #hi%h the muni%ipal %orporation #as prohibited b& la# to impose. I/ 0$n the supervision fee is an in%ome tax or a li%ense fee. R/ It is a li%ense fee. A FIC?)>? A?? is imposed in the exer%ise of the poli%e po#er primaril& for purposes of re'ulation" #hile TAG is imposed under the taxin' po#er primaril& for purposes of raisin' revenues. If the 'eneratin' of revenue is the primar& purpose and re'ulation is merel& in%idental" the imposition is a tax, but if re'ulation is the primar& purpose" the fa%t that in%identall&" revenue is also obtained does not ma e the imposition a tax. To be %onsidered a li%ense fee" the imposition must relate to an o%%upation or a%tivit& that so en'a'es the publi% interest in health" morals" safet&" and development as to re-uire re'ulation for the prote%tion and promotion of su%h publi% interest, the imposition must also bear a reasonable relation to the probable expenses of re'ulation" ta in' into a%%ount not onl& the %osts of dire%t re'ulation but also its in%idental %onse-uen%es. In this %ase" the Aarmers1 Ear et is a privatel&.o#ned mar et established for the rendition of servi%e to the 'eneral publi%. It #arrants %lose supervision and %ontrol b& the Cit& for the prote%tion of the health of the publi% b& insurin' the maintenan%e of sanitar& %onditions" prevention of fraud upon the bu&in' publi%" et%. >in%e the purpose of the ordinan%e is primaril& re'ulation and not revenue 'eneration" the tax is a li%ense fee. The use of the 'ross amount of stall rentals as basis for determinin' the %olle%tible amount of li%ense tax does not" b& itself" %onvert the li%ense tax into a prohibited tax on in%ome. >u%h basis a%tuall& has a reasonable relationship to the probable %osts of re'ulation and supervision of Pro'ressive1s ind of business" sin%e ordinaril&" the hi'her the amount of rentals" the hi'her the volume of items sold. The hi'her the volume of 'oods sold" the 'reater the extent and fre-uen%& of supervision and inspe%tion ma& be re-uired in the interest of the bu&in' publi%.

It is the *9K?CT of the %har'e" and )*T the name" that determines #hether a %har'e is a tax or a fee. In this %ase" the mone& %olle%ted under the Eotor @ehi%le Fa# is not intended for the expenditures of the Eotor @ehi%le *ffi%e but for the %onstru%tion and maintenan%e of publi% roads" streets and brid'es. Thus" sin%e the said fees are %olle%ted )*T for the re'ulatin' motor vehi%les on publi% hi'h#a&s but for providin' R?@?)5? for the 'ov in order to %onstru%t publi% hi'h#a&s" the& are TAG?>" not merel& fees. PAF is exempt from pa&in' su%h fees" ex%ept for the period bet#een ;B Kune :HL2 to H April :HBH" #here its tax exeption in the fran%hise #as repealed.

PA. v. E"u 5nder a le'islative fran%hise" Philippine Airlines is exempt from all taxes ex%ept for the pa&ment of ;3 of its 'ross revenue to the )ational Jovernment. *n the stren'th of an opinion of the >e%retar& of Kusti%e" PAF #as determined not to have been pa&in' motor vehi%le re'istration fees sin%e :H5L. ?ventuall&" the Fand Transportation Commissioner re-uired all tax exempt entities" in%ludin' PAF" to pa& motor vehi%le re'istration fees. PAF protested. I/ 0$n PAF is exempt from the pa&ment of motor vehi%le re'istration fees R/ C?>" PAF is exempt. The motor vehi%le re'istration fee is a tax" to #hi%h PAF is exempt. Taxes are for revenue" #hile fees are exa%tions for purposes of re'ulation and inspe%tion. Thus" fees are limited in amount to #hat is ne%essar& to %over the %ost of the servi%es rendered in that %onne%tion.

1ille'as v. Hiu C$i n' Tsai Pa H The Euni%ipal 9oard of Eanila passed an ordinan%e prohibitin' an alien from bein' emplo&ed or en'a'in' in an& position or o%%upation or business enumerated therein" #hether permanent" temporar&" or %asual" #ithout first se%urin' an emplo&ment permit from the Ea&or and pa&in' the P50 permit fee. Diu Chion' filed an a%tion to restrain the enfor%ement of the ordinan%e and to have it de%lared null and void for bein' dis%riminator& and violative of the rule on uniformit& in taxation. The Ea&or ar'ued that the ordinan%e %annot be de%lared null and void on the 'round that it violates the rule on uniformit& of taxation be%ause this rule applies onl& to purel& tax or revenue measures and not to re'ulator& measures" su%h as the ordinan%e. I/ 0$n the ordinan%e is valid. R/ )*" the ordinan%e is void. The first part of the ordinan%e re-uirin' an alien to se%ure an emplo&ment permit is re'ulator& in %hara%ter be%ause it involves the exer%ise of dis%retion on the part of the Ea&or in approvin' or disapprovin' the appli%ations. Do#ever" the se%ond part #hi%h re-uires the pa&ment of P50 as emplo&ee1s fee is not re'ulator& but a revenue measure. There is no lo'i% or =ustifi%ation in exa%tin' P50 from aliens #ho have been %leared for emplo&ment. The obvious purpose of the ordinan%e is to raise mone& under the 'uise of re'ulation. The P50 fee is unreasonable not onl& be%ause it is ex%essive but be%ause it fails to %onsider valid substantial differen%es in situation amon' individual aliens #ho are re-uired to pa& it. The same amount is bein' %olle%ted from ever& emplo&ed alien" #hether he is %asual or permanent" part time or full time" or #hether he is a lo#l& emplo&ee or a hi'hl& paid exe%utive. C #pania General "e Tabac s v. Ci!& ) ,anila Taba%alera paid for its li-uor li%ense and also paid sales tax on its sale of 'eneral mer%handise" in%ludin' li-uor. It %laimed that it made an overpa&ment and demanded a refund of the sales tax paid on the 'round that sin%e it alread& paid the li%ense fees" it #as no lon'er bound to pa& the sales tax on the li-uor. I/ 0$n Taba%alera is liable for sales tax on the li-uor despite alread& havin' paid for its li-uor li%ense. R/ C?>" Taba%alera is liable. Jenerall&" the term 6tax7 applies to all inds of exa%tions #hi%h be%ome publi% funds. Fe'all&" ho#ever" a li%ense fee is a le'al %on%ept -uite distin%t from tax. o Taxes are for raisin' revenues #hile li%ense fees are imposed in the exer%ise of poli%e po#er for purposes of re'ulation.

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5nder on ordinan%e" Taba%alera must pa& li%ense fees in order to %ontinue en=o&in' the privile'e of sellin' li-uor" %onsiderin' that the sale of intoxi%atin' li-uor is potentiall& harmful to publi% health and morals" and must be sub=e%t to >tate re'ulation. 5nder another ordinan%e" Taba%alera is liable for sales tax on sales of 'eneral mer%handise" in%ludin' li-uor. 9oth a li%ense fee and a tax ma& be imposed on the same business or o%%upation" or for sellin' the same arti%le" #ithout it bein' in violation of the rule a'ainst double taxation.

A#erican ,ail .ines v. Ci!& ) -asilan The Cit& Coun%il of 9asilan ena%ted an ordinan%e imposin' an an%hora'e fee on forei'n vessels" #hi%h an%hor #ithin its territorial #aters. The an%hora'e fee #as M %entavo per ton of the vessel for ever& ;< hours or part thereof" provided that the maximum %har'e shall not ex%eed PB5 per da&. Ameri%an Eail Fines" et al -uestioned the validit& of the ordinan%e on the 'round that the Cit& of 9asilan had no authorit& to %olle%t an%hora'e fees from forei'n vessels. The Cit& of 9asilan ar'ued that the ordinan%e #as a valid exer%ise of the %it&1s poli%e po#er and that the fees #ere for purel& re'ulator& purposes. It %laimed that sin%e the Cit& of 9asilan #as an island #ith mountainous %oasts and frin'ed b& %oves" ba&s and islets" there #as a need for funds to suppress possible smu''lin' a%tivities. I/ 0$n the ordinan%e #as valid R/ )*" the ordinan%e is void. The Charter of the City of Basilan gives the Council the authority to fix the charges to be paid by all watercraft landing at or using public wharves, docks, levees, or landing places. The anchorage fees are not included in this power, as shown by the need of the Council to enact the amendatory ordinance. Contrary to the claim of the Council, the anchorage fees are not being charged for regulatory purposes. They are actually intended for revenue purposes. The po#er to re'ulate as an exer%ise of poli%e po#er does )*T in%lude the po#er to impose fees for revenue purposes. Aees for purel& re'ulator& purposes ma& onl& be of suffi%ient amount to in%lude/ o expenses of issuin' the li%ense A)4 o %ost of the ne%essar& inspe%tion $ poli%e surveillan%e" o ta in' into a%%ount I)CI4?)TAF expenses In this %ase" the fees #ere based on the tonna'e of the vessels. This basis of fixin' the fees has no reasonable relation to the %ost of issuin' permits and the %ost of inspe%tion or surveillan%e. Also" the fee imposed on forei'n vessels ( M %entavo per ton for the first ;< hours" and #hi%h shall not ex%eed PB5 per da& ( ex%eeded even the harbor fee imposed b& the )ational Jovernment" #hi%h #as onl& P50. Fastl&" the %it&1s o#n %ontention that the ordinan%e #as ena%ted in the exer%ise of taxation po#er ma es it obvious that the fees #ere not merel& re'ulator&. TD5>" the fees #ere intended for revenue purpose and )*T for re'ulator& purposes.

Pres. Ear%os issued P4 :H5L %reatin' the *il Pri%e >tabili8ation Aund (*P>A)" #hi%h #as desi'ned to reimburse oil %ompanies for %ost in%reases in %rude oil and imported petroleum produ%ts resultin' from/ o ex%han'e rate ad=ustments A)4 o in%reases in the #orld mar et pri%es of %rude oil A portion of the *P>A #as ta en from %olle%tions of ad valorem taxes levied on oil %ompanies. >ubse-uentl&" b& virtue of an ?*" the *P>A #as re%lassified into a trust liabilit& a%%ount and ordered released from the )ATI*)AF TR?A>5RC to the EI)I>TRC of ?ner'&. >aid ?* also authori8ed the investment of the fund in 'overnment se%urities" #ith the earnin's a%%ruin' to the fund. A-uino then amended P4 :H5L b& promul'atin' ?* :3B" #$% expanded the 'rounds for reimbursement to oil %ompanies for possible C*>T 5)4?RR?C*@?RC in%%ured resultin' from the redu%tion of domesti% pri%es on petroleum produ%ts. The said %ost underre%over& #as left to the determination of the Einistr& of Ainan%e. *smena then -uestioned the %reation of the trust fund" sa&in' that it violates the Constitution. N This is be%ause the mone& %olle%ted pursuant to P4 :H5L is a spe%ial fund" and under the Constitution" if a spe%ial tax is %olle%ted for a spe%ifi% purpose" the revenue 'enerated from it shall be treated as a >P?CIAF A5)4 to be used onl& for the indi%ated purpose. It must not be %hanneled to another 'overnment ob=e%tive. I/ 0$n the %reation of the trust fund is violative of the Constitution R/ )*" %reation of the trust fund #as valid. In order for the funds to fall under the prohibition" it must be sho#n that the& #ere %olle%ted as TAG?> ( as a form of revenue 0hile the funds %olle%ted ma& be referred to as taxes" the& are exa%ted in the exer%ise of the P*FIC? P*0?R of the >tate . The main ob=e%tive #as )*T revenue but to stabili8e the pri%e of oil and petroleum. The *P>A is a%tuall& a >P?CIAF A5)4" as seen from the spe%ial treatment 'iven to it b& ?* :3B. It is se're'ated from the 'eneral fund, and #hile it is pla%ed in #hat the la# refers to as a Otrust liabilit& a%%ount"O the fund nonetheless remains sub=e%t to the s%rutin& and revie# of the C*A. These measures thus %ompl& #ith the %onstitutional des%ription of a Ospe%ial fund.O What is here involved is not so much the power of taxation as police power. For a valid delegation of power, it is essential that the law delegating the power must be o !" complete in itself ## must set forth the policy to be executed by the delegate o $" it must fix a standard % limits of whichare sufficiently determinate or determinable % to which the delegate must conform. &uch was fulfilled in this case.

Republic v. -ac l "3,urcia ,illin' C . The Philippine >u'ar Institute (Philsu'in)" a semi.publi% %orporation" #as %reated for the purpose of %ondu%tin' resear%h to advan%e the %ountr&1s su'ar industr&. Os#e2a v. Orb s

MONTERO - Tax 1 Digests | Y. Sanchez 2A 2012

To %arr& out these ob=e%tives" the %harter of Philsu'in authori8ed the lev& of :0 %ents $ pi%ul of su'ar for 5 &ears to be %olle%ted from su'ar %ane planters in the %ountr&. The pro%eeds of this lev& #ould 'o to a spe%ial fund to be used ex%lusivel& b& Philsu'in. Philsu'in then pur%hased the Insular >u'ar Refiner& usin' mone& from this spe%ial fund. >everal &ears later" Insular >u'ar Refiner& had a%%umulated tremendous losses. 3 su'ar %entrals refused to %ontinue pa&in' their %ontributions to the fund" 'iven that the pur%hase of the Insular >u'ar Refiner& b& Philsu'in #as )*T authori8ed b& its %harter" and its %ontinued operation #as inimi%al to their interests. The& also %ontended that their obli'ation to pa& their %ontributions subsisted *)FC to the ?GT?)T that the& #ere benefited b& the %ontributions" sin%e the lev& #as merel& a spe%ial assessment and not a tax. I/ 0$n the lev& #as a spe%ial assessment or a revenue measure R/ It #as )?ITD?RP The lev& for the Philsu'in Aund is not so mu%h an exer%ise of the po#er of taxation nor the imposition of a spe%ial assessment" but the exer%ise of the P*FIC? P*0?R for the 'eneral #elfare of the entire %ountr&. It is therefore an exer%ise of a soverei'n po#er" #hi%h no private %iti8en ma& la#full& resist. In 'ut( v. )raneta, Court held that sin%e su'ar produ%tion is one of the leadin' industries of our nation" its development redounds 'reatl& to the 'eneral #elfare. Thus" the Fe'islature found it in the interest of the 'eneral #elfare to stabili8e the su'ar industr& throu'h the po#er of taxation. Eoreover" the %harter of Philsu'in authori8es it to %ondu%t resear%h in the su'ar industr& in order to find #a&s to redu%e the %ost of produ%tion and a%hieve 'reater effi%ien%& in the industr&. This provision =ustifies the a%-uisition of the refiner&" sin%e there is no better #a& to %arr& out this resear%h than to a%tuall& operate a refiner&. ?ven if the operations of the refiner& suffered from losses" Philsu'in1s experien%e of runnin' the refiner& is a JAI) to the industr&. Den%e" the su'ar %entrals #ere still benefited b& the a%-uisition. TAG vs. >P?CIAF A>>?>>E?)T/ o The purpose of a spe%ial assessment is to finan%e the improvement of par!icular pr per!ies" #$ the benefits of the improvement a%%ruin' to the o#ners thereof #ho pa& the assessment. o The purpose of an ordinar& tax is to provide the Jovernment #ith revenues nee"e" ) r !$e )inancin' ) s!a!e a))airs . Refusal of a %iti8en to pa& taxes ma& not be san%tioned be%ause it #ould impair 'overnment fun%tions. This #ould not hold true in the %ase of a refusal to %ompl& #ith a spe%ial assessment.

a) ex%eeds the amount fixed in Provin%ial Cir%ular :;.A issued b& the Ainan%e 4ept o b) is dis%riminator&" as it sin'les out @E" #$% is the onl& operator of a su'ar %entral and a su'ar refiner& #ithin the =urisdi%tion of defendant muni%ipalit& o %) %onstitutes double taxation o d" the national government has preempted the field of taxation with respect to sugar centrals or refineries The lo#er %ourt held that the exa%tion #as invalid be%ause the muni%ipalit& CA))*T impose a tax for revenue in the 'uise of a poli%e measure. The amounts set forth in the ordinan%e also ex%eeded the %ost of li%ensin'" re'ulatin'" and surveillan%e. I/ 0$n the ordinan%e #as valid. R/ The ordinan%e #as valid. The ordinan%e #as promul'ated not in the exer%ise of the muni%ipalit&Rs re'ulator& po#er but as a R?@?)5? measure" authori8ed b& Common#ealth A%t <B;. 5nder this" a muni%ipalit& is authori8ed to impose three inds of li%enses/ o :) li%ense for re'ulation of useful o%%upations $ enterprises o ;) li%ense for restri%tion$ re'ulation of non.useful o%%upations or enterprises o 3) li%ense for revenue The first ; fall #$in poli%e po#er" #hile the 3rd is for revenue purposes. The li%ense fee in this %ase falls under S3 and is valid. Jenerall& spea in'" it is )*T a li%ense fee" but rests on taxin' po#er" #$% must be expressl& %onferred b& statute upon the muni%ipalit&. There is no double taxation be%ause the %ompan& is bein' taxed for the same ob=e%t/ *ne tax is on su'ar %entrals and the other is on su'ar refineries. It =ust so happens that the %ompan& is both. *)lso, the tax was imposed based on capacity of the sugar centrals to produce, so it was really a license on the occupation or business of sugar centrals and sugar refineries and not on the sugar itself+ hence there was no identity of ob,ect of taxation-. There is no dis%rimination despite the fa%t that the %ompan& is the onl& su'ar produ%in' entit& in the muni%ipalit&. @i%torias Eillin' is not named in the ordinan%e and should another %orporation de%ide to produ%e su'ar in the area" it #ill be taxed a%%ordin'l&. JR/ If not for poli%e inspe%tion" supervision" re'ulation + it is a revenue measureP o

1ic! rias ,illin' v. ,unicipali!& ) 1ic! rias The muni%ipal %oun%il of @i%torias ena%ted *rdinan%e : #$% re-uired su'ar %entrals operatin' #$in the muni%ipalit& to pa& an annual muni%ipal li%ense tax. 9ased on the ordinan%e" @i%torias Eillin' #as assessed <0Q (imposed on su'ar %entrals) and another <0Q (imposed on su'ar refineries). Thus" @i%torias Eillin' filed a suit to de%lare the ordinan%e void sin%e it/

.u!* v. Arane!a Common#ealth A%t 5LB or the >u'ar Ad=ustment A%t" #as promul'ated in :H<0 in response to the imminent threat to the su'ar industr& b& the imposition of export taxes upon su'ar as provided in the T&din's.E%4uffie A%t" and the eventual loss of its preferential position in the 5> mar et. In order to stabili8e the su'ar industr& to prepare for the loss" CA 5LB provided for an I)CR?A>? in the existin' tax on the manufa%ture of su'ar (on a 'raduated basis)" the pro%eeds of #hi%h #ould a%%rue to the >u'ar Ad=ustment and >tabili8ation Aund (a spe%ial fund in the Phil Treasur&).

MONTERO - Tax 1 Digests | Y. Sanchez 2A 2012

0alter Fut8" in his %apa%it& as administrator of the ?state of Antonio Fedesma" #anted to re%over from the Colle%tor of Internal Revenue the amount paid b& the estate as taxes" alle'in' that the tax imposed b& CA 5LB is un%onstitutional" bein' levied for the aid and support of the su'ar industr& ex%lusivel&" #hi%h is )*T a publi% purpose. I/ 0$n the tax is un%onstitutional be%ause it is not devoted to a publi% purpose. R/ The tax is validP The defe%t in the ar'ument of Fut8 is his assumption that the tax provided for in CA 5LB is a pure exer%ise of the taxin' po#er. In realit&" the tax is levied #ith a re'ulator& purpose" to provide means for the rehabilitation and stabili8ation of the threatened su'ar industr&. Thus" it is primaril& an exer%ise of poli%e po#er. >u'ar produ%tion is one of the 'reat industries of our nation. >u'ar/ o *%%upies the leadin' position amon' export produ%ts o Jives emplo&ment to thousands of laborers o Is an impt sour%e of forei'n ex%han'e Thus" its development redounds to J?). 0?FAAR? and the le'islature ma& determine #ithin reasonable bounds #hat is ne%essar& for its prote%tion and promotion. Taxation ma& be made the implement of the >tate1s poli%e po#er. .t is inherent in the power to tax that a state be free to select the sub,ects of taxation, so the argument that the tax to be levied burdens sugar producers themselves does not hold water. It does not matter that the funds raised under the >u'ar >tabili8ation A%t should be ex%lusivel& spent in aid of the su'ar industr&" sin%e it is that ver& enterprise that is bein' prote%ted, le'islature is not re-1d b& the Consti to adhere to the poli%& of 6all or none.7 Fastl&" the taxation does not %onstitute expenditure of tax mone& for private purposes" sin%e the funds #ill be used to in%rease su'ar produ%tion" solve problems and improve #or in' %onditions in su'ar mills.

PCGG v C (uan'c After the ?4>A Revolution" Pres A-uino issued ?*s :" ; and :</ o ?* : %reated the Presidential Commission on Jood Jovernment (PCJJ) to assist the President in the re%over& of ill.'otten #ealth a%%umulated b& former Pres Ear%os and his famil&. o ?* ; states that the ill.'otten #ealth is in the form of properties lo%ated in the the Phils and other %ountries. o ?* :< empo#ered PCJJ #$ assistan%e of the >olJen and other 'ov a'en%ies" to file and prose%ute %ases under ?*s : and ;. Pursuant to these la#s" the PCJJ issued and implemented numerous se-uestrations" free8e orders and provisional ta eovers of properties of alle'edl& ill.'otten %ompanies. Amon' the properties se-uestered #ere shares of sto% in the 5CP9 (5nited Co%onut Planters 9an )" the so.%alled CIIA Companies (Co%onut Industr& Investment Aund %ompanies) and Co=uan'%o" Kr.

>andi'anba&an then issued a resolution liftin' the se-uestration of the 5CP9 shares on the 'round that respondents C*C*A?4 and the CIIA Companies #ere )*T been impleaded b& the PCJJ as parties.defendants. PCJJ %hallen'ed the said resolution. Eean#hile" >andi'anba&an ordered the holdin' of ele%tions for the 5CP9 9oard of 4ire%tors. It also allo#ed the se-uestered shares to be voted b& their re'istered o#ners. Thus" respondents C*C*A?4" Co=uan'%o" et%" as re'istered o#ners" #ere allo#ed to exer%ise their ri'ht to vote their shares of sto% in 5CP9 at the >to% holder1s Eeetin'" and exer%ise their sto% holders1 ri'hts. Republi% of the Phils then %ontended that the >andi'anba&an %ommitted JA4 in en=oinin' the PCJJ from votin' the se-uestered shares of sto% in the 5CP9" despite the fa%t that/ o the se-uestration shares #ere pur%hased #ith %o%onut lev& funds" #hi%h #ere P59FIC in %hara%ter" A)4 o A previous resolution allo#ed the PCJJ to vote the se-uestered shares I/ 0$n the %o%onut lev& funds parta e of the nature of taxes" and if the ans#er is in the affirmative" #$n the& %onstitute publi% funds R/ The %o%onut lev& funds parta e of the nature of taxes #$% %onstitute publi% funds Jenerall&" the ri'ht to vote se-uestered shares of sto% re'istered in the names of private individuals $ entitles alle'ed to have been a%-uired #ith ill.'otten #ealth shall be exer%ised b& the R?JI>TR?4 *0)?R>. D*0?@?R" the PCJJ ma& be 'ranted su%h votin' ri'ht provided it %an sho#/ o prima fa%ie eviden%e that the shares are indeed ill.'otten o there is imminent dan'er of dissipation of the assets" ne%essitatin' their %ontinued se-uestration and votin' b& the 'overnment until a final de%ision on their o#nership is promul'ated b& the proper %ourt In this %ase" %o%onut lev& funds parta e of the nature of taxes #hi%h" in 'eneral" are enfor%ed proportional %ontributions from persons and properties" exa%ted b& the >tate b& virtue of its soverei'nt& for the support of 'overnment and for all publi% needs. 9ased on this definition" a tax has 3 elements" namel& that it is/ o an enfor%ed proportional %ontribution from persons and properties o imposed b& the >tate b& virtue of its soverei'nt& o levied for the support of the 'overnment. Taxation is done not merel& to raise revenues to support the 'overnment" but also to provide means for the rehabilitation and the stabili8ation of a threatened industr& affe%ted b& publi% interest" as to be #ithin the poli%e po#er of the >tate. The %ourt in its earlier pronoun%ements stressed that the %o%onut lev& funds are not onl& affe%ted #ith publi% interest but are also prima fa%ie" P59FIC A5)4> .. mone& raised b& operation of la# to support the 'ov in the dis%har'e of its obli'ations. Conse-uentl&" the 'overnment should be allo#ed to %ontinue votin' sin%e the shares #ere pur%hased #$ %o%onut lev& funds" #$% are publi% in %hara%ter and affe%ted #$ publi% interest.

MONTERO - Tax 1 Digests | Y. Sanchez 2A 2012

 C ##issi ner n In!ernal Revenue v P.DT P4FT paid the 9IR about P:L< ! for e-uipment and spare parts it imported for its business. The amount in%luded %ompensatin'" advan%e sales and other internal revenue taxes. PF4T also paid @AT. As a fran%hise holder" PF4T #as entitled to a tax exemption privile'e under RAB02; ('rant of fran%hise)" #hi%h provided that the 'rantee should pa& a fran%hise tax e-uivalent to 33 of all 'ross re%eipts" and that the said per%enta'e shall be in FI?5 of all taxes on the fran%hise$ its earnin's. PF4T #rote to the 9IR re-uestin' %onfirmation of its exemption privile'e" and 9IR %onfirmed this" sa&in' that PF4T #as liable for the 33 fran%hise tax and exempt from @AT on its importation of e-uipment. PF4T filed a %laim for tax refund of the @AT" %ompensatin' taxes" advan%e sales taxes and other taxes it had been pa&in' erroneousl& from *%tober" :HH;. 4e%ember" :HH<. CTA 'ranted the petition (althou'h rulin' that a portion from *%t.4e%:L" :HH; had alread& pres%ribed and #as be&ond the ;.&r period allo#ed b& la# for refunds)" orderin' CIR to R?A5)4 or to I>>5? in favor of petitioner a Tax Credit Certifi%ate in the redu%ed amount of about P;;3 ! representin' erroneousl& paid @AT and other taxes (%ompensatin'" advan%e sales" importation) from :HH; to :HH<. /udge &aga dissented, saying who clarified that the 0in lieu of1 provision of &ec!$ refers only to 2.34CT taxes and not to indirect taxes such as 5)T, compensating tax, and advance sales tax. 9IR moved for re%onsideration and the same #as denied. CA also dismissed its appeal. I/ 0$n PF4T is exempt from pa&ment of @AT other taxes b& virtue of the provision in its fran%hise that the 33 fran%hise tax on its 'ross re%eipts shall be in lieu of all taxes on its fran%hise $ earnin's R/ )*" PF4T is not exempt from @AT and other taxes Court has al#a&s ruled that TAGATI*) is the R5F?" and exemption is the ex%eption. Thus" statutes 'rantin' tax exemptions must be %onstrued stri%tl& a'ainst the taxpa&er and liberall& in favor of the taxin' authorit&. The burden of =ustf&in' exemption is imposed on the one #ho %laims a refund. The %lause 6in lieu of all taxes7 in >e% :; of RA B02; is immediatel& follo#ed b& the limitin' or -ualif&in' %lause 6on this fran%hise or earnin's thereof7" su''estin' that the exemption is limited to taxes imposed 4IR?CTFC on PF4T sin%e taxes pertainin' to PF4T1s fran%hise or earnin's are its dire%t liabilit&. Thus" indire%t taxes" not bein' taxes on PF4T1s fran%hise or earnin's" are *5T>I4? the purvie# of the 6in lieu7 provision. The :03 @AT on importation of 'oods parta es of an ex%ise tax levied on the privile'e of importin' arti%les. It is )*T a tax on the fran%hise of a business enterprise" but is imposed on all taxpa&ers #ho import 'oods #hether or not the 'oods #ill eventuall& be sold" bartered" ex%han'ed or utili8ed for personal %onsumption. The 5)T on importation replaces the advance sales tax payable by regular importers who import articles for sale or as raw materials in the manufacture of finished articles for sale.

4ire%t taxes . impositions for #hi%h a taxpa&er is dire%tl& liable on the transa%tion or business he is en'a'ed in Indire%t taxes . those #here the liabilit& for the pa&ment of the tax falls on one person but the burden %an be shifted or passed on to another person" su%h as #hen the tax is imposed upon 'oods before rea%hin' the %onsumer #ho ultimatel& pa&s for it o In this %ase" advan%e sales tax has the attributes of an indire%t tax be%ause the tax.pa&in' importer of 'oods for sale or of ra# materials to be pro%essed into mer%handise %an shift the tax $ la& the 6e%onomi% burden of the tax7 on the pur%haser" b& subse-uentl& addin' the tax to the sellin' pri%e of the imported arti%le or finished produ%t o Compensatin' tax also parta es of the nature of an ex%ise tax pa&able b& all persons #ho import arti%les" #hether in the %ourse of business or not. (Purpose/ to pla%e" for tax purposes" persons pur%hasin' from mer%hants in the Philippines on a more or less e-ual basis #ith those #ho bu& dire%tl& from forei'n %ountries)

Plan!ers Pr "uc!s Inc v Fer!ip$il Ear%os issued F*I :<L5" imposin' a %apital re%over& %omponent of Php:0.00 per ba' of fertili8er. The lev& #as to %ontinue until ade-uate %apital #as raised to ma e PPI finan%iall& viable Aertiphil remitted to the Aertili8er and Pesti%ide Authorit& (APA)" #hi%h then remitted said amount to Aar ?ast 9an and Trust Compan&" the depositor& ban of PPI. PL ! #as remitted from :H25 to :H2L. After ?4>A" Aertiphil demanded from PPI a refund of the amount it remitted, PPI refused. Aertiphil filed a %omplaint for %olle%tion and dama'es" -uestionin' the %onstitutionalit& of F*I :<L5. The& %laimed it #as un=ust" unreasonable" oppressive" invalid and an unla#ful imposition that amounted to a denial of due pro%ess APA on the other hand said that the issuan%e of F*I :<L5 #as a valid exer%ise of poli%e po#er of the state in insurin' the fertili8er industr&" and that Aertiphil did not sustain an& dama'e be%ause the burden imposed b& the lev& fell on the ultimate %onsumer" not the seller I/ :. 0$m the issuan%e of F*I :<L5 #as an exer%ise of the poli%e po#er of the state . )* ;. 0$n the lev& #as for a publi% purpose . )* R/ :. The imposition of the lev& #as a exer%ise of the taxation po#er of the state. 0hile it is true that the po#er to tax %an be used as an implement of poli%e po#er" the primar& purpose of the lev& #as revenue 'eneration. If the purpose is primaril& revenue" or if revenue is" at least" one of the real and substantial purposes" then the exa%tion is properl& %alled a tax. In this %ase" the imposition of Php:0 per ba' is too ex%essive to serve a mere re'ulator& purpose. ?ven if it #as an exer%ise of the poli%e po#er of the state" the F*I #ould still be invalid as it did not %ompl& #ith the test of 6la#ful sub=e%ts7 and 6la#ful means7 .. spe%ifi%all&" that the interest of the publi%" 'enerall&" re-uires its exer%ise" and that the means emplo&ed are reasonabl& ne%essar& for the a%%omplishment of the purpose and not undul& oppressive upon individuals. ;. F*I :<L5 is not for a publi% purpose.

MONTERO - Tax 1 Digests | Y. Sanchez 2A 2012

The purpose for the issuan%e of F*I :<L5 #as to support a private %ompan&/ o Airst" it is expressl& provided that the lev& be imposed to benefit a private %ompan& ( PPI. o >e%ond" the lev& #as %onditional and dependent on PPI be%omin' finan%iall& viable. o Third" the levies #ere dire%tl& remitted and deposited in A?9TC" the ban of PPI" #hi%h used said remittan%es to pa& of PPI1s debts.

.I,ITATIONS ON THE PO4ER OF TAXATION Pascual v Secre!ar& ) Public 4 r/s Con'ress passed an RA appropriatin' P25Q for the %onstru%tion of Pasi' feeder road terminals. The Provin%ial Jovernor of Ri8al filed an a%tion for de%larator& relief and in=un%tion" %laimin' that at the time of the passa'e and approval of the A%t" these feeder roads had not &et been %onstru%ted and #ere not %onne%ted to an& 'overnment propert& or main hi'h#a&. The feeder roads #ere a%tuall& #ithin the Antonio >ubdivision" #hi%h #as o#ned b& Kose Tulueta" a member of the >enate of the Philippines. Tulueta" before the passa'e of the A%t" had offered to donate the propert& to the muni%ipalit& of Pasi'" but the deed of donation #as exe%uted onl& several months after the RA #as passed. Den%e" Con'ress appropriated publi% funds for the %onstru%tion of feeder roads that #ere" at the time the la# #as passed" private propert&. ISSUE5 0hether the appropriation is valid. HE.D5 The appropriation is invalid. The taxin' po#er must be exer%ised for publi% purposes onl& and not for the advanta'e of private individuals. The ri'ht of the le'islature to appropriate publi% funds is %orrelative #ith its ri'ht to tax. As the Constitution prohibits taxation ex%ept for a publi% purpose" so also no appropriation of state funds %an be made other than for a publi% purpose. The test of the %onstitutionalit& of a statute re-uirin' the use of publi% funds is #hether the statute is desi'ned to promote the publi% interests as opposed to the furtheran%e of the advanta'e of individuals" althou'h su%h advanta'e to individuals mi'ht incidentally serve the publi%. ?ven if subse-uentl&" Tulueta exe%uted the deed of donation in favor of the muni%ipalit&" ma in' the roads publi% propert&" the appropriation is still invalid. The validit& of the statute depends upon the po#ers of Con'ress at the time of its passa'e" not upon events o%%urrin' after. At the time the bill #as passed" the road #as still private propert&. Therefore" the appropriation sou'ht a private purpose and #as null and void. The subse-uent donation %ould not have %ured this nullit&. Os#ena v Orb s Pres. Ear%os issued P4 :H5L %reatin' the *il Pri%e >tabili8ation Aund (*P>A)" #hi%h #as desi'ned to reimburse oil %ompanies for %ost in%reases in %rude oil and imported petroleum produ%ts resultin' from/ o ex%han'e rate ad=ustments A)4 o in%reases in the #orld mar et pri%es of %rude oil A portion of the *P>A #as ta en from %olle%tions of ad valorem taxes levied on oil %ompanies.

>ubse-uentl&" b& virtue of an ?*" the *P>A #as re%lassified into a trust liabilit& a%%ount and ordered released from the )ATI*)AF TR?A>5RC to the EI)I>TRC of ?ner'&. >aid ?* also authori8ed the investment of the fund in 'overnment se%urities" #ith the earnin's a%%ruin' to the fund. A-uino then amended P4 :H5L b& promul'atin' ?* :3B" #$% expanded the 'rounds for reimbursement to oil %ompanies for possible C*>T 5)4?RR?C*@?RC in%%ured resultin' from the redu%tion of domesti% pri%es on petroleum produ%ts. The said %ost underre%over& #as left to the determination of the Einistr& of Ainan%e. *smena then -uestioned the %reation of the trust fund" sa&in' that it violates the Constitution. This is be%ause the mone& %olle%ted pursuant to P4 :H5L is a spe%ial fund" and under the Constitution" if a spe%ial tax is %olle%ted for a spe%ifi% purpose" the revenue 'enerated from it shall be treated as a >P?CIAF A5)4 to be used onl& for the indi%ated purpose. It must not be %hanneled to another 'overnment ob=e%tive. I/ 0$n the %reation of the trust fund is violative of the Constitution R/ )*" %reation of the trust fund #as valid. :. Aor the funds to fall under the prohibition" it must be sho#n that the& #ere %olle%ted as TAG?> ( as a form of revenue 0hile the funds %olle%ted ma& be referred to as taxes" the& are exa%ted in the exer%ise of the P*FIC? P*0?R of the >tate . The main ob=e%tive #as )*T revenue but to stabili8e the pri%e of oil and petroleum. The *P>A is a%tuall& a >P?CIAF A5)4" as seen from the spe%ial treatment 'iven to it b& ?* :3B. It is se're'ated from the 'eneral fund, and #hile it is pla%ed in #hat the la# refers to as a Otrust liabilit& a%%ount"O the fund nonetheless remains sub=e%t to the s%rutin& and revie# of the C*A. These measures thus %ompl& #ith the %onstitutional des%ription of a Ospe%ial fund.O ;. Also" there #as no undue dele'ation of taxation po#er be%ause the la# provides a suffi%ient standard b& #hi%h the authorit& must be exer%ised. Aor a valid dele'ation of po#er" it is essential that the la# dele'atin' the po#er must be/ o :) %omplete in itself .. must set forth the poli%& to be exe%uted b& the dele'ate o ;) it must fix a standard U limits of #hi%h are suffi%ientl& determinate or determinable U to #hi%h the dele'ate must %onform. In this %ase" there #as a suffi%ient standard" #hi%h is the 'eneral poli%& of the la# to prote%t the %onsumer b& stabili8in' and subsidi8in' petroleum pri%es.

Pepsi3C la v ,unicipali!& ) Tanauan This %ase involved ; Euni%ipal *rdinan%es and the Fo%al Autonom& A%t (RA ;;L<)/ o The Fo%al Autonom& A%t (RA ;;L<) 'rants muni%ipalities the authorit& to impose muni%ipal taxes or fees upon persons en'a'ed in an& o%%upation or business #ithin their =urisdi%tions" provided that the& #ere not allo#ed to impose per%enta'e tax on sales and on items alread& sub=e%t to spe%ifi% tax under the )IRC

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Euni%ipal *rdinan%e )o. ;3 of Tanauan" Fe&te imposes on soft drin produ%ers and manufa%turers a tax of 6+67 ) a cen!av ) r ever& b !!le ) s )! "rin/ c r/e". o Euni%ipal *rdinan%e )o. ;B imposes on soft drin s produ%ed or manufa%tured a tax of 6 cen!av n eac$ 'all n ) v lu#e capaci!&. Pepsi filed an a%tion to de%lare the Fo%al Autonom& A%t and the t#o ordinan%es void. It %laimed that RA ;;L< is an undue dele'ation of po#er. I/ 0$n RA ;;L< %onstitutes an undue dele'ation of po#er . )* ;. 0hether E*s ;3 and ;B are valid ( C?>P R/ :. RA ;;L< is not an undue dele'ation of po#er. The po#er of taxation ma& be dele'ated to lo%al 'overnments in respe%t of matters of lo%al %on%ern. This is not to sa& thou'h that the %onstitutional in=un%tion a'ainst deprivation of propert& #ithout due pro%ess of la# ma& be passed over under the 'uise of the taxin' po#er" ex%ept #hen the ta in' of propert& is in the la#ful exer%ise of the taxin' po#er" as #hen/ o the tax is for a publi% purpose, o the rule on uniformit& of taxation is observed, o either the person or propert& taxed is #ithin the =urisdi%tion of the o 'overnment lev&in' the tax, and o in the assessment and %olle%tion of %ertain inds of taxes" noti%e and opportunit& for hearin' are provided. The dele'ation of the taxin' po#er to the muni%ipal %orporation %annot be assailed either on the 'round of double taxation. 4ouble taxation is prohibited onl& #hen the taxpa&er is taxed t#i%e for the same benefit b& the same entit& for the same purpose" not #here one tax is imposed b& the >tate and the other b& a muni%ipalit&. ;. The E*s are valid. E* )o. ;B is not a tax on sales but on the produ%e" sin%e it is based on volume %apa%it&. )either is it a spe%ifi% tax be%ause soft drin s do not fall #ithin the enumeration of items sub=e%t to spe%ifi% tax. The rate of the tax is also reasonable and %annot be said to be unfair or oppressive. Euni%ipalities are empo#ered to impose" not onl& muni%ipal li%ense taxes upon persons en'a'ed in an& business or o%%upation" but also to lev& for publi% purposes" =ust and uniform taxes. o SSS v Ci!& ) -ac l " The >>> had an offi%e buildin' in 9a%olod Cit&. It failed to pa& realt& taxes for three %onse%utive &ears. The Cit& levied upon the propert& and forfeited it in its favor. >>> protested the forfeiture on the 'round that the >>>" bein' a 'overnment o#ned and %ontrolled %orporation" is exempt from pa&ment of real estate taxes. The CAI ruled that >>> is )*T %overed b& the exemption" sa&in' that the exemption onl& applies to properties o#ned b& 'overnment a'en%ies and instrumentalities performin' 'overnmental$ soverei'n fun%tions. It ex%luded from the %overa'e of the exemption those performin' proprietar& fun%tions" su%h as the >>>. It relied on the %ase of 6)C7C7 v. Bacani in #hi%h

the Court held that 'overnment a'en%ies performin' proprietar& fun%tions are )*T exempt from pa&in' le'al fees. I/ 0$n a J*CC performin' pr prie!ar& fun%tions li e the >>>" is exempt from pa&in' realt& taxes. R/ Ces. The >>> is exempt from pa&in' realt& taxes. The Charter of the Cit& of 9a%olod provides that lands and buildin's o#ned b& the 'overnment are exempt from realt& taxes. The appli%ation of the 6)C7C7 v. Bacani %ase is in%orre%t" sin%e that %ase #as referrin' to le'al fees and )*T to realt& taxes. Aor purposes of exemptions in the pa&ment of realt& taxes" the distin%tion bet#een 'overnment a'en%ies performin' %onstituent and ministrant fun%tion is not important. 0hat is de%isive is merel& that the properties possessed b& the >>> are in fa%t o#ned b& the 'overnment of the Philippines. As su%h" the& are exempt from realt& taxes. To ma e su%h a distin%tion #ould have the effe%t of ta in' mone& from one po% et and puttin' it in another po% et. It #ould not serve the main purpose of taxation and #ould even tend to defeat it" be%ause of the paper#or " time" and expenses that it #ould entail. 4$en public pr per!& is inv lve", e%e#p!i n is !$e rule an" !a%a!i n, !$e e%cep!i n

,anila In!8l Airp r! Au!$ ri!& v Ci!& ) P89ue As operator of the )AIA" the Eanila Intl Aiport (EIAA) administers the land" improvements and e-uipment #ithin the )AIA %omplex. The EIAA %harter transferred to the EIAA approximatel& L00 he%tares of land" in%ludin' run#a&s and buildin's. The %harter also provided that no portion of the land transferred to the EIAA shall be disposed of throu'h sale or an& other mode unless approved b& the President. The *ffi%e of the Jovernment Corporate Counsel #as of the opinion that the lo%al 'overnment %ode #ithdre# the exemption from real estate tax 'ranted to EIAA. EIAA paid some of the real estate taxes due but #as also held delin-uent. The Cit& of Parana-ue threatened to sell the Airport lands should EIAA fail to pa& the real estate delin-uen%&. EIAA filed a petition for in=un%tion but CA dismissed this. EIAA. A da& before the s%heduled publi% au%tion" the EIAA filed a motion for an issuan%e of a TR* before the >C #hi%h the >C 'ranted immediatel&. Do#ever the respondents re%eived the TR* 3 hours after the %on%lusion of the publi% au%tion" so the >C issued a resolution %onfirmin' nun% pro tun% (no# for then) the TR*. I/ 0$n the Airport lands and buildin's of EIAA are exempt from real estate taxes under existin' la#s Deld/ C?>" it is. :. A J*CC is )*T exempt from real estate tax. Do#ever" EIAA is )*T a J*CC. A J*CC must be or'ani8ed as a sto% or non. sto% %orporation. EIAA is not or'ani8ed as a sto% or non.sto% %orporation.

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EIAA is a 'overnment instrumentalit& vested #ith %orporate po#ers to perform effi%ientl& its 'overnmental fun%tions. It is li e an& other 'ov instrumentalit&" but is )*T vested #$ %orporate po#ers. A 'overnment instrumentalit& li e EIAA falls under the FJC #$% states that lo%al 'ovs CA))*T tax the national 'overnment" #$% dele'ates the po#er to tax to lo%al 'ovs. The po#er of lo%al 'ovs to tax is sub=e%t to Con'ress limitations. ;. Airport lands and buildin's of EIAA are propert& of publi% dominion" devoted to publi% use" and are o#ned b& the >tate (Art <;0 Civ CodeUroads" portsV o#ned b& state). Thus" the& are outside the %ommer%e of man and CA))*T be the sub=e%t of sale. 5nless the President issues a pro%lamation #ithdra#in' the Airport lands and 9uildin's from publi% use" these properties remain properties of publi% dominion and are inalienable. EIAA is merel& holdin' title to the Airport lands and buildin's in TR5>T for the Republi%. This is made %learer b& the fa%t that onl& the President %an si'n su%h deed of %onve&an%e involvin' said propert&. The transfer of the said property to the 8.)) was meant to implement a reorgani(ation. The 8.)) charter transferred )irport lands and buildings to 8.)) without the 3epublic receiving any cash. The purpose was to reorgani(e a division in the Bureau of )ir Transportation into a separate and autonomous body. The 3epublic remains the beneficial owner of the lands and buildings. FJC exempts from real estate tax an& real propert& o#ned b& the Republi% of the Philippines. It also states that real propert& o#ned b& the Republi% loses its tax exemption *)FC if the benefi%ial use thereof has been 'ranted" to a taxable person. EIAA is not a taxable person. D*0?@?R" portions of the lands and buildin's that EIAA leases to private entities are )*T exempt from real estate tax.

Sea3.an" Services Inc. v. CA5 In!erna!i nal C #i!& >ea.Fand" an Ameri%an shippin' %ompan&" entered into a %ontra%t #ith the 5> Jovernment for the transport of militar& household 'oods and effe%ts of 5> militar& personnel assi'ned to the >ubi% )aval 9ase. The 9IR %olle%ted :.53 in%ome tax on the in%ome derived b& >ea.Fand" #hi%h >ea.Fand paid. Fater" >ea.Fand as ed for a refund" %laimin' that it had paid the tax b& mista e. It invo ed the tax exemption provided in the RP.5> Eilitar& 9ases A'reement" #hi%h exempts from tax an& profit derived b& a 5> national under a %ontra%t #ith the 5> 'overnment in %onne%tion #ith the construction, maintenance, operation, and defense of the bases. >ea.Fand filed a petition for revie# #ith the CTA to =udi%iall& pursue its %laim for refund and to stop the runnin' of the ;.&ear pres%riptive period. CTA1s W CA denied refund. I5 0$) >ea.Fand falls #ithin the %overa'e of the tax exemption. )* R5 The transport or shipment of household 'oods and effe%ts of 5>militar& personnel is not in%luded in the term construction, maintenance, operation, and defense of the bases. )either %an the a%tivit& be interpreted as dire%tl& related to the defense and se%urit& of the Philippine territories. It is therefore not %overed b& the exemption. 6Fa#s 'rantin' exemption from tax are %onstrued stri%tissimi =uris a'ainst the taxpa&er and liberall& in favor of the taxin' po#er. Taxation is the rule and exemption is the ex%eption.7 The la# 6does not loo #ith favor on tax exemptions and that he #ho #ould see to be thus privile'ed must =ustif& it b& #ords too plain to be mista en and too %ate'ori%al to be misinterpreted.7 The avo#ed purpose of tax exemption 6is some publi% benefit or interest" #hi%h the la#ma in' bod& %onsiders suffi%ient to offset the monetar& loss entailed in the 'rant of the exemption.7 The haulin' or transport of household 'oods and personal effe%ts of 5. >. militar& personnel #ould not dire%tl& %ontribute to the defense and se%urit& of the Philippines. CIR v. ,i!subis$i ,e!al C rp.5 In!erna!i nal C #i!& Atlas Consolidated Einin' entered into a Foan and >ales Contra%t #ith Eitsubishi. 5nder the Contra%t" Eitsubishi #ould lend Atlas X;0E for the installation of a ne# %on%entrator for %opper produ%tion" and in turn" Atlas #ould sell to Eitsubishi all the %opper %on%entrates produ%ed from the ma%hine for the next :5 &ears. Thereafter" Eitsubishi applied for a loan #ith ?ximban of Kapan and other %onsortium of Kapanese ban s so that it %ould %ompl& #ith its obli'ations under the %ontra%t. The total amount of both loans #as X;0E. Approval of the loan b& ?ximban to Eitsubishi #as sub=e%t to the %ondition that Eitsubishi #ould use the amount as loanto Atlas and as %onsideration for importin' %opper %on%entrates from Atlas. Atlas made interest pa&ments in favor of Eitsubishi totalin' P:3E. The %orrespondin' :53 tax on the interest in the amount of P:.HE #as #ithheld and remitted to the Jovernment. >ubse-uentl&" Eitsubishi and Atlas filed a %laim for tax %redit" re-uestin' that the P:.HE be applied a'ainst their existin' tax liabilities on the 'round that the interest earned b& Eitsubishi on the loan #as exempt from tax. The )IRC provides that in%ome re%eived from loans in the Philippines extended b& finan%in' institutions o#ned" %ontrolled" or finan%ed b& forei'n 'overnments are exempt from tax.

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Eitsubishi and Atlas %laim that the interest earned from the loan falls under the above exemption be%ause Eitsubishi #as merel& a%tin' as an a'ent of ?ximban " #hi%h is a finan%in' institution o#ned" %ontrolled" and finan%ed b& the Kapanese Jovernment. The& alle'e that Eitsubishi #as merel& the %onduit bet#een Atlas and ?ximban " and that the ultimate %reditor #as reall& ?ximban . I5 0$) the interest in%ome from loans extended to Atlas b& Eitsubishi is ex%luded from 'ross in%ome taxation and therefore ex%luded from #ithholdin' tax. )* R5 Eitsubishi #as not a mere a'ent of ?ximban . It entered into the a'reement #ith Atlas in its o#n independent %apa%it&. The transa%tion bet#een Eitsubishi and Atlas on the one hand" and bet#een Eitsubishi and ?ximban on the other" #ere separate and distin%t. Thus" the interest in%ome of the loan paid b& Atlas to Eitsubishi is entirel& different from the interest in%ome paid b& Eitsubishi to ?ximban . 0hat #as sub=e%t of the #ithholdin' tax is not the interest in%ome paid b& Eitsubishi to ?ximban but the interest in%ome earned b& Eitsubishi from the loan to Atlas. >in%e the transa%tion #as bet#een Eitsubishi and Atlas" the exemption that #ould have been appli%able to ?ximban " does not appl&. The interest is therefore not exempt from tax. It is true that under the %ontra%t of loan #ith ?ximban " Eitsubishi a'reed to use the amount as a loan to and in %onsideration for importin' %opper %on%entrates from Atlas" but this onl& proves the =ustifi%ation for the loan as represented b& Eitsubishi #hi%h is a standard ban in' pra%ti%e for evaluatin' the prospe%ts of due repa&ment. 6Fa#s 'rantin' exemption from tax are %onstrued stri%tissimi =uris a'ainst the taxpa&er and liberall& in favor of the taxin' po#er. 0hile international %omit& is invo ed in this %ase on the nebulous representation that the funds involved in the loans are those of a forei'n 'overnment" s%rupulous %are must be ta en to avoid openin' means to violate our tax la#s. *ther#ise" the mere expedient of havin' Phil %orp enter into a %ontra%t for loans #ith private forei'n entities" #hi%h in turn #ill ne'otiate independentl& #ith their 'overnments" %ould be availed to ta e advanta'e of the tax exemption la# under dis%ussion.

The ?x%han'e filed an a%tion for prohibition a'ainst the CIR for him to desist from %olle%tin' the taxes from the mer%hants. The ?x%han'e %laims that the taxes imposed on the mer%hants #ere drivin' up the pri%es of 'oods sold to it b& the mer%hants. The ?x%han'e %laims that the mer%hants should be exempt from taxes sin%e the revenue la# provides that no spe%ifi% tax shall be %olle%ted on an& 'oods sold and delivered dire%tl& to the 5> Arm& of )av& for their a%tual use or issue. I5 0$) the mer%hants sellin' 'oods to the ?x%han'e are exempt from sales tax. )* R5 The tax exemption %overs those 'oods that are sold dire%tl& to the 5> Arm& or )av& for their a%tual use or issue. In this %ase" the 'oods are sold to the ?x%han'e for resale to individuals belon'in' to the Arm& or )av&" and not to the Arm& or )av& itself. Den%e" the& do not fall #ithin the exemption. The rule is that #ithout Con'ressional %onsent" no Aederal a'en%& or instrumentalit& %an be taxed b& state authorit&. Do#ever" nl& !$ se a'encies !$r u'$ ;$ic$ !$e Fe"eral G vern#en! i##e"ia!el& an" "irec!l& e%ercises i!s s verei'n p ;ers are i##une )r # !$e !a%in' p ;er ) !$e s!a!es. The reason upon #hi%h the rule rests must be the 'uidin' prin%iple to %ontrol its operation. The limitations upon the taxin' po#er of the state must re%eive a pra%ti%al %onstru%tion #hi%h does not seriousl& impair the taxin' po#er of the Jovernment imposin' the tax. The effe%t of the tax upon the fun%tions of the Jovernment and the nature of the 'overnmental a'en%& determine finall& the extent of the exemption. In this %ase" the tax laid upon Philippine mer%hants #ho sell to the ?x%han'e does not interfere #ith the suprema%& of the 5> Jovernment or #ith the operations of its instrumentalit& the 5> Arm&" to su%h an extent or in su%h a manner as to render the tax ille'al. The tax does not deprive the Arm& of the po#er to serve the Jovernment or hinder the effi%ient exer%ise of its po#er.

:6s! In)an!r& P s! E%c$an'e v. P sa"as5 In!erna!i nal C #i!& The 3:st Infantr& Post ?x%han'e #as an a'en%& under the %ontrol of the 5> Arm&" operatin' in the Philippines. The ?x%han'e bou'ht 'oods" su%h as soap and toiletries" and resold them to offi%ers" soldiers" and %ivilian emplo&ees of the 5> Arm& and their families. The pro%eeds derived from the sales #ere then used for the betterment of the %ondition of the personnel of the Arm&. In the %ourse of its business" the ?x%han'e pur%hased 'oods from mer%hants in the Philippines. The Colle%tor of Internal Revenue %olle%ted from these mer%hants taxes at the rate of :.53 of the 'ross value sold b& them to the ?x%han'e.

CIR v. ,arubeni C rp ra!i n Earubeni #as a Kapanese %orporation en'a'ed in the import and export" tradin'" and %onstru%tion business. It %ompleted t#o %ontra%ts in :H2<" the in%ome from #hi%h it did not de%lare. *ne of the %ontra%ts #as #ith )4C in %onne%tion #ith the %onstru%tion of a #harf$port %omplex in Fe&te. The other %ontra%t #as #ith the Philippine Phosphate Aertili8er Corp (Philfos) for the %onstru%tion of an ammonia stora'e %omplex also in Fe&te. The CIR then made an assessment on EarubeniRs defi%ien%& taxes. It found that the )4C and Philpos %ontra%ts #ere made on a 6turn. e&7 basis (a =ob in #hi%h the %ontra%tor a'rees to %omplete the #or of buildin' and installation to the point of readiness or o%%upan%&, in other #ords" the produ%ts are brou'ht to the %lient %omplete and read& for use) amountin' to about PHL0E!. The t#o %ontra%ts #ere divided into t#o parts ( the offshore portion and the onshore portion. All materials and e-uipment in the %ontra%t under the offshore portion #ere manufa%tured and %ompleted in Kapan. After manufa%ture" these #ere transported to Fe&te and installed to the pier #ith the use of bolts. CIR found that Earubeni #as liable for %ontra%torRs tax on the offshore portion.

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Earubeni filed a petition #ith the CTA" ar'uin' that the in%ome derived from the offshore portion should be exempt from tax sin%e it #as derived outside of the Philippine =urisdi%tion. I5 0$) in%ome of Earubeni is taxable even if it %laims that it #as earned outside of the Philippines. )*" Earubeni is )*T liable for the %ontra%tor1s tax. R5 A %ontra%tor1s tax is in the nature of an ex%ise tax on the exer%ise of a privile'e of sellin' servi%es or labor rather than a sale of produ%ts. It is dire%tl& %olle%tible from the person exer%isin' the privile'e. 9ein' an ex%ise tax" it %an be levied b& the taxin' authorit& onl& #hen the a%ts" privile'es or business are done or performed #ithin the =urisdi%tion of said authorit&. Fi e propert& taxes" it %annot be imposed on an o%%upation or privile'e outside the taxin' distri%t. In this %ase" the ship loaders" boats and mobile e-uipment used in the %onstru%tion pro=e%ts #ere all desi'ned" en'ineered and fabri%ated in Kapan. The& #ere merel& shipped to Fe&te and assembled there. 0hile the %onstru%tion and installation #or #ere %ompleted #ithin the Philippines" some pie%es of e-uipment and supplies #ere %ompletel& desi'ned and en'ineered in Kapan. >in%e these servi%es #ere rendered outside the taxin' =urisdi%tion of the Philippines" the& are therefore not sub=e%t to the %ontra%tor1s tax.

'round o%%upied b& an embass& is not in fa%t the territor& of the forei'n >tate to #hi%h the premises belon' throu'h possession or o#nership. The la#fulness or unla#fulness of a%ts there %ommitted is determined b& the territorial soverei'n. A state is not pre%luded from allo#in' another po#er to parti%ipate in the exer%ise of =urisdi%tional ri'ht over %ertain portions of its territor&. If it does so" it does not follo# that su%h areas be%ome impressed #$ alien %hara%ter. The& retain their status as native soil. The& are still sub=e%t to its authorit&. Itts =urisdi%tion ma& be diminished" but it does not disappear. >o it is #ith the bases under lease to the Ameri%an armed for%es b& virtue of the Eilitar& 9ases A'reement of :H<B. The& are not and %annot be forei'n territor&.

Rea'an v. CIR5 Terri! rial <uris"ic!i n Rea'an" an Ameri%an %iti8en and an emplo&ee 9endix Aviation Corporation" #hi%h provides te%hni%al assistan%e to the 5> Air Aor%e" #as assi'ned at Clar Air 9ase. De imported a tax.free :HL0 Cadilla% %ar. After a fe# months" he as ed his 9ase Commander at the Clar Air 9ase for a permit to sell the %ar #hi%h #as 'ranted provided that the sale should be made to a member of the 5> Armed Aor%es or a 5> %iti8en emplo&ed in the 5> militar& base in the Philippines. De then sold the %ar to " Kr. #ho #as a member of the 5> Earine Corps in Cavite. Kohnson" Kr. then sold the %ar to Eeneses. The CIR assessed him and he paid the in%ome tax on the amount reali8ed from the sale. After pa&in' the in%ome tax" he sou'ht a refund from CIR %laimin' that he is exempt. 0hile the a%tion #as pendin'" he filed the %ase #ith the CTA see in' the re%over& of #hat he paid plus the le'al rate of interest. Rea'an is imputin' that the Clar Air Aor%e is forei'n soil or territor& and thus is be&ond the 'overnment1s =urisdi%tional po#er to tax. Dis 'round is based upon an obiter di%tum in a :HL; de%ision I5 0$) the sale is exempt from in%ome tax. )* R5 The sale is not exempt from in%ome tax be%ause it too pla%e #ithin Philippine territor& thus #ithin the 'overnment1s =urisdi%tional po#er to tax. Clar Air Aor%e 9ase is not a forei'n soil or territor& for purpose of in%ome tax le'islation. There is nothin' in the Eilitar& 9ases A'reement that lends support to su%h assertion. It has not be%ome forei'n soil or territor&. The Philippine1s =urisdi%tional ri'hts therein" %ertainl& not ex%ludin' the po#er to tax" have been preserved. The Phils bein' independent and soverei'n" its authorit& ma& be exer%ised over its entire domain. There is no portion thereof that is be&ond its po#er. Its la#s 'overn therein" and ever&one to #hom it applies must submit to its terms. The

Tiu v. CA5 E9ual Pr !ec!i n ) !$e .a;s Con'ress passed RA B;;B #hi%h %reated the >ubi% >pe%ial ?%onomi% Tone" 'rantin' tax and dut& in%entives (tax and dut&.free importations of ra# materials" %apital and e-uipment) to businesses and residents #ithin the area en%ompassed b& the 8one. The la# provides that no lo%al and national taxes shall be imposed #ithin the 8one. In lieu of taxes" 33 of the 'ross in%ome of enterprises operatin' #ithin the 8one shall be remitted to the )ational Jovernment" :3 to the lo%al 'overnment units" and :3 to a development fund to be utili8ed for the development of muni%ipalities outside *lan'apo and >ubi%. Pres. Ramos later issued an ?* spe%if&in' a 6se%ured area7 area #ithin the 8one in #hi%h the privile'es #ere operative. o EO=> tax and dut&.free importations #ill onl& appl& to ra# materials" %apital 'oods and e-uipment brou'ht in b& business enterprises into the >>?T. ?x%ept for import tax and duties" all business are re-uired to pa& the spe%ified taxes in >e%tion :;(%) of RAB;;B. o EO=>3A the tax in%entives are onl& appli%able to business enterprises and individuals residin' #ithin the se%ured area. Petitioners outside the 6se%ured area7 %hallen'ed the %onstitutionalit& of this ?* for alle'edl& bein' violative of their ri'ht to e-ual prote%tion of the la#s. The& assert that the >>?T en%ompasses (:) the Cit& of *lon'apo" (;) the Euni%ipalit& of >ubi% in Tambales" and (3) the area formerl& o%%upied b& the >ubi% )aval 9ase. Do#ever" ?* HB.A" a%%ordin' to them" narro#ed do#n the area #ithin #hi%h the spe%ial privile'es 'ranted to the entire 8one #ould appl& to the present 6fen%ed.in former >ubi% )aval 9ase7 onl&. It has hereb& ex%luded the residents of the first t#o %omponents of the 8one from en=o&in' the benefits 'ranted b& the la#. I5 0$) the ?* %onfinin' the appli%ation of the privile'es under RA B;;B #ithin the se%ured area and ex%ludin' the residents of the 8one outside the se%ured area violates the e-ual prote%tion %lause. )*. R5 There are real and substantive distin%tions bet#een the %ir%umstan%es obtainin' inside and outside the >ubi% )aval base" thereb& =ustif&in' avalid and reasonable %lassifi%ation. Aor a valid %lassifi%ation" the follo#in' re-uisites must be present/ :. it must rest on substantial differen%es, ;. must be 'ermane to the purpose of the la#, 3. must not be limited to existin' %onditions onl&, and <. must appl& e-uall& to all members of the same %lass.

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In this %ase" the purpose of the la# is to a%%elerate the %onversion of militar& reservations into produ%tive areas (e%onomi% or industrial areas) . Thus" the lands %overed under the Eilitar& 9ases A'reement are its ob=e%t. To a%hieve purpose" Con'ress deemed it ne%essar& to extend e%onomi% in%entives to attra%t and en%oura'e investors. It #as thus reasonable for the President to have delimited the appli%ation of some in%entives to the %onfines of the former >ubi% militar& base" sin%e it is this spe%ifi% area #hi%h the 'overnment intends to transform and develop into a self.sustainin' industrial and e%onomi% 8one" parti%ularl& for the use of bi' forei'n and lo%al investors to use as operational bases for their businesses and industries. These bi' investors possess the %apital ne%essar& to spur e%onomi% 'ro#th and 'enerate emplo&ment opportunities. There are substantial differen%es bet#een the bi' investors #ho are bein' lured to establish and operate their industries in the so.%alled 6se%ured area7 and the present business operators outside the area.

9i' investors lured into se%ured areas .billion.peso investments W thousand of ne# =obs .national e%onomi% impa%t .

Present bi8 operators outside the are .no su%h ma'nitude .onl& lo%al e%onomi% impa%t .bi8 a%tivities outside se%ured areas are not li el& to have an& impa%t in a%hievin' purpose of la# #hi%h is to turn former militar& base to produ%tive use for the benefit of the Phil e%onom& There is" then" hardl& an& reasonable basis to extend to them the benefits and in%entives a%%orded in RA B;;B

< $n Ha& Pe ples Al!erna!ive C ali!i n v. .i# RA )o. B;;B %reated the 9ases Conversion and 4evelopment Authorit& (9C4A)" #hi%h also %reated the >ubi% >pe%ial ?%onomi% Tone (>ubi% >?T). Aside from 'rantin' in%entives to >ubi% >?T" RA B;;B also 'ranted the President is an express authorit& to %reate other >?Ts in the areas %overed respe%tivel& b& the Clar militar& reservation" the 0alla%e Air >tation in >an Aernando" Fa 5nion" and Camp Kohn Da& throu'h exe%utive pro%lamations. 9C4A entered into a E*A and ?s%ro# A'reement #ith T5)T?G and A>IA0*RF4" private %orporations under the la#s of the 9ritish @ir'in Islands" preparator& to the formation of a =oint venture for the development of Poro Point Fa 5nion and Camp Kohn Da& as premier tourist destinations and re%reation %enters. 9C4A" T5)T?G and A>IA0*RF4 exe%uted a K@A to put up the 9a'uio International 4evelopment and Eana'ement Corporation #hi%h #ould lease areas #ithin Camp Kohn Da& and Poro Point for the attainment of the tourist and re%reation spots in Fa 5nion and Camp Kohn Da&. President Ramos issued Pro%lamation )o. <;0 #hi%h established a >?T on a portion of Camp Kohn Da&. ; nd senten%e of >e%tion 3 of said Pro%lamation provided for national and lo%al tax exemption #ithin and 'raned other e%onomi% in%entives to the Kohn Da& >pe%ial ?%onomi% Tone. 6>e%tion 3/ Investment Climate in Kohn Da& >pe%ial ?%onomi% Tone.. Pursuant to >e%tion 5(m) and >e%tion :5 of RA )o. B;;B" the Kohn Da& Poro Point 4evelopment Corporation shall implement all ne%essar& poli%ies" rules" and

re'ulations 'overnin' the 8one" in%ludin' investment in%entives" in %onsultation #ith pertinent 'overnment departments. A# n' !$ers, !$e * ne s$all $ave all !$e applicable incen!ives ) !$e Special Ec n #ic ? ne un"er Sec!i n 6@ ) Republic Ac! N . >@@> an" !$ se applicable incen!ives 'ran!e" in !$e E%p r! Pr cessin' ? nes, the *mnibus Investment Code of :H2B" the Aorei'n Investment A%t of :HH:" and ne# investment la#s that ma& hereinafter be ena%ted.7 Petitioners filed this %ase to en=oin the respondents from implementin' Pro%. <;0. is un%onstitutional on 'rounds of/ o Aor bein' ille'al and invalid in so far as it 'rants tax exemptions thus amountin' to un%onstitutional exer%ise of b& the President of po#er 'ranted onl& to le'islature o Fimits po#ers and interferes #ith the autonom& of the %it& o @iolates rule that all taxes should be uniform and e-uitable I5 0$) Pro%lamation )o. <;0 is %onstitutional b& providin' for national and lo%al tax exemption #ithin and 'rantin' other e%onomi% in%entives to the Kohn Da& >pe%ial ?%onomi% Tone. )*" ;nd senten%e" >e%tion 3 of said pro%lamation is un%onstitutional. 0$) Pro%lamation )o. <;0 is %onstitutional for limitin' or interferin' #ith the lo%al autonom& of 9a'uio Cit&. C?> R5 T$e @n" Sen!ence ) SECTION : ) Pr cla#a!i n N . A@B is $ereb& "eclare" NU.. an" 1OID and is a%%ordin'l& de%lared of no le'al for%e and effe%t. Publi% respondents are hereb& en=oined from implementin' the aforesaid void provision. Pro%lamation )o. <;0" #ithout the invalidated portion" remains valid and effe%tive. Un"er Sec!i n 6@ ) RA N . >@@> i! is clear !$a! ON.C THE SU-IC SE? ;$ic$ ;as 'ran!e" b& C n'ress ;i!$ !a% e%e#p!i n, inves!#en! incen!ives an" !$e li/e. THERE IS NO EXPRESS EXTENSION OF THE SAID PRO1ISION IN PRESIDENTIA. PROC.A,ATION N . A@B. (>e%tion :; ept mentionin' >ubi% >pe%ial ?%onomi% Tone" spe%ifi%all&V) Als ) un" in !$e "elibera!i ns ) !$e Sena!e, a c n)ir#a!i n ) !$e e%clusivi!& ) !$e !a% an" inves!#en! privile'es ! Subic SE?. DSena! r An'ara5 T$e Gen!le#an is abs lu!el& c rrec!. ,r. Presi"en!. SO 4E ,UST CONFINE THESE PO.ICIES ON.C TO SU-IC.E It is the le'islature" unless limited b& a provision of the state %onstitution that has full po#er to exempt an& person" %orporation or %lass of propert& from taxation" its po#er to exempt bein' as broad as its po#er to tax. *ther than the Con'ress" the Constitution ma& itself provide for spe%ifi% tax exemptions" or lo%al 'overnments ma& pass ordinan%es on exemption onl& from lo%al taxes. The %hallen'ed 'rant of tax exemption must have %on%urren%e of a ma=orit& of all members of Con'ress. In same vein" the other inds of privile'es extended to the Kohn Da& >?T are b& tradition and usa'e for Con'ress to le'islate upon. Tax exemption %annot be implied as it must be %ate'ori%all& and un mista abl& expressed ( if it #ere the intent of the le'islature to 'rant to the Kohn Da& >?T the same tax exemption and in%entives 'iven to >ubi% >?T" it #ould have so expressl& provided in RA B;;B. 9C4A" under R.A B;;B" is expressl& entrusted #ith broad ri'hts of o#nership and administration over Camp Kohn Da&" as the 'overnin' a'en%& of the Kohn Da& >?T.

COCONUT OI. REFINERS ASSOCIATION INC. 1. -CDA

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RA B;;B #as ena%ted providin' for the sound and balan%ed %onversion of the Clar and >ubi% militar& reservations and their extensions into alternative produ%tive uses in the form of spe%ial e%onomi% 8ones. President Ramos issued ?* 20 #hi%h de%lared that Clar (C>?T) shall have all the appli%able in%entives 'ranted to the >ubi% >pe%ial ?%onomi% and Aree Port Tone (>>?T) under RA B;;B. Petitioners %laim that the said ?.* as #ell as RA B;;B are replete #ith %onstitutional infirmities and must be de%lared invalid and void. Petitioner assail/ o ?* 20 and 9C4A 9oard Resolution/ allo#in' the tax and dut&.free sale at retail of %onsumer 'oods imported via %lar for %onsumption outside C>?T. o ?* HB" ?* HB.A/ 'rantin' X:00 monthl& and X;00 &earl& tax.free shoppin' privile'es to >>?T residents livin' outside se%ured area of >>?T and to Ailipinos a'ed :5 and over residin' outside >>?T Petitioners ar'ue that the ?xe%utive 4epartment" b& allo#in' thru -uestioned issuan%es the settin' up of tax and dut& free shops and the removal of %onsumer ''oods and items from the 8ones #ithout pa&ment of %orrespondnin' duties and taxes arbitraril& provided additional exemptions to the limitations imposed b& RA B;;B. I5 (other issues/ e-ual prote%tion %lause" preferential use of Ailipino labor" prohibition a'ainst unfair %ompetition) 0$) assailed issuan%es amounts to violation of the rule on separation of po#ers bein' exe%utive le'islation. R5 Petitioners %laim that the #ordin' of RA B;;B %learl& limits the 'rant of tax in%entives to the importation of ra# materials and %apital e-uipment onl&" hen%e the& %laim that assailed issuan%es %onstitute exe%utive le'islation for invalidl& 'rantin' tax in%entives in importation of %onsumer 'oods. The %ourt ho#ever said that to limit the tax.free importation privile'e of enterprises to those lo%ated inside the spe%ial 8one onl& to ra# materials %learl& runs %ounter to the intention of the le'islature to %reate a free port #here 6free flo# of 'oods or %apital #ithin" into and out of the 8ones7 is insured. The re%ords of the >enate %ontainin' the dis%ussion of the %on%ept of >?T in >e% :;a RA B;;B sho# the le'islative intent that %onsumer 'oods enterin' the >>?T #hi%h satisf& the needs of the 8one and are %onsumed there are not sub=e%t to duties and taxes in a%%ordan%e #ith Philippine la#s. A%%ordin' to >enator Juin'ona/ The >?T %ould embra%e the needs of tourism" servi%in'" finan%in' and other investment aspe%ts. Do#ever #ith re'ard to the exe%utive order issued b& President Ramos %on%ernin' Clar as bein' a >?T (and thus en=o& tax exemptions and in%entives) the %ourt de%lared that su%h #as an invalid exer%ise of exe%utive le'islation. As #as de%ided in the %ase of Camp Kohn Ka&" #herein the %ourt held that Kohn Da& #as not 'ranted an& tax exemption as it #as not an&#here stated in the la#. As in this %ase" RA B;;B expressl& provides for the 'rant of in%entives to the >>?T it fails to ma e an& similar 'rant ho#ever to the other e%onomi% 8ones in%ludin' Clar . Tax and dut& free in%entives bein' in the nature of tax exemptions the basis thereof should be %ate'ori%all& and unmista abl& expressed from the lan'ua'e of the statute.

The Roman Catholi% 9ishop of 9an'ued #anted to be exempted from pa&ment of real estate tax. De filed an a%tion for de%larator& relief in the CAI of Abra. The CAI rendered a summar& =ud'ment 'rantin' the exemption. The Provin%e of Abra filed an a%tion for %ertiorari a'ainst the CAI on the 'round that it 'ranted the a%tion for de%larator& relief filed b& the Roman Catholi% 9ishop #ithout allo#in' the Provin%e to ans#er and #ithout hearin'" in violation of its ri'ht to due pro%ess. It also alle'ed that the =ud'e (Dernando) failed to abide P4 )o. <L< #hi%h states that" 6)o %ourt shall entertain an& suit A>>AIFI)J the validit& of tax until the taxpa&er pa&s under protest the tax assessed a'ainst him.. nor shall an& %ourt de%lare an& portion of the tax assessed I)@AFI4 ex%ept if the taxpa&er shall pa& the =ust amount of tax determined b& the %ourt.7 I/ 0$n the =ud'ment of the %ourt 'rantin' the exemption to the Roman Catholi% 9ishop of 9an'ued is valid R/ )*" it is invalid In order to exempt reli'ious institutions from the pa&ment of real estate taxes" the propert& must be use" e%clusivel&, ac!uall&, an" "irec!l& ) r reli'i us purp ses. T$us, To be exempted from realt& tax" there must be proof of ACT5AF and 4IR?CT use of the propert& for reli'ious or %haritable purposes. In this %ase" the ri'ht of the Provin%e of Abra to pro%edural due pro%ess #as violated b& the summar& =ud'ment 'rantin' the exemption. Instead of a%%eptin' the bare alle'ation of the bishop that the propert& #as bein' used ex%lusivel&" dire%tl&" and a%tuall& for publi% purposes" the =ud'e should have first re-uired proof of these alle'ations.

Pr vince ) Abra v Hernan"

T len!in v. Sec. ) Finance >everal parties filed %omplaints in the >C -uestionin' the le'alit& of ?xpanded @AT la# (RA BB:L)" #hi%h sou'ht to #iden the tax base of the existin' @AT s&stem (Y5)T a tax levied on the sale, barter or exchange of goods and properties )& W4'' )& as on the sale or exchange of services+ or &.89': tax on spending ; consumption )/ :) The P$ilippine Press Ins!i!u!e %ontends that b& removin' @AT exemption from the press #hile maintainin' those 'ranted to others" the ?@AT Fa# dis%riminates a'ainst the press and violates the freedom of the press. R/ >in%e the la# 'ranted the press a privile'e" the la# %ould ta e ba% the privile'e an&time 0ITD*5T offense to the Constitution. The >tate" b& 'rantin' exemptions" does )*T forever #aive the exer%ise of its soverei'n prero'ative. In #ithdra#in' the exemption" the la# merel& sub=e%ts the press to the same tax burden to #hi%h other businesses have alread& been sub=e%t. The %ase of <ros,ean v. )merican 9ress Co. %ited b& the PPI is different be%ause in that %ase" the tax #as found to be dis%riminator& be%ause it #as imposed onl& on ne#spapers #hose #ee l& %ir%ulation #as over P;0 . These papers #ere %riti%al of a %ertain senator #ho %ontrolled the state le'islature. The %ensorial motivation of the la# #as thus evident. D*0?@?R" in this %ase" the motivation #as not to %ensor but merel& to raise revenues. 0hat the le'islature %annot impose upon the press is a license tax" #hi%h is mainl& for re'ulation A)4 is un%onstitutional be%ause it la&s PRI*R R?>TRAI)T on the exer%ise of a ri'ht.

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In this %ase" the @AT is not a li%ense tax be%ause it is not a tax on the exer%ise of a privile'e or of a %onstitutional ri'ht. It is imposed on the sale of 'oods purel& for revenue purposes. ;) Philippine 9ible >o%iet& %laims that the imposition of @AT on the sales of its bibles I)ARI)J?> on reli'ious freedom be%ause the tax I)CR?A>?> the pri%e of the bibles" #hile R?45CI)J the volume of sales. It also %laims exemption from the re'istration fee of P: . R/ The resultin' burden on the exer%ise of reli'ious freedom is so I)CI4?)TAF as to ma e it diffi%ult to differentiate it from an& other e%onomi% imposition that mi'ht ma e the ri'ht to disseminate reli'ious do%trines %ostl&. To follo# P9>1 ar'ument of in%reasin' the tax on the sale of vestments #ould be to la& an impermissible burden on the ri'ht of the prea%her to ma e a sermon. The re'istration fee is reall& =ust to pa& for the expenses of re'istration and enfor%ement of the provisions of the la#. ?ven if P9> is ex%used from pa&in' taxes on those bibles that it distributes for free" it still has to pa& the re'istration fee sin%e it also en'a'es in the sale of bibles. 3. CR?9A %laims that the la#/ a) impairs the obli'ations of %ontra%ts be%ause the appli%ation of the tax to existin' %ontra%ts of the sale of real propert& b& installment #ould result in substantial in%reases in monthl& amorti8ations" #hi%h the bu&er did not anti%ipate at the time he entered into the %ontra%t. b) violates e-ual prote%tion sin%e the la# exempts lo#.%ost housin' from @AT but )*T middle.%lass housin'. %) 9ein' an indire%t" re'ressive tax" @AT violates the %onstitutional mandate to provide a pro'ressive s&stem of taxation. R/ a) @AT does )*T violate the non.impairment %lause be%ause the obli'ation of %ontra%ts CA))*T defeat the authorit& of the 'overnment to tax b& virtue of its soverei'nt&. b) )either did it violate ?PC be%ause there #as a substantial distin%tion bet#een the homeless poor and the middle %lass. The middle %lass %an afford to rent houses #hile the homeless poor %annot. %) As to it bein' a re'ressive tax" the Constitution does not prohibit re'ressive taxes. 0hat it simpl& provides is that Con'ress shall evolve a pro'ressive s&stem of taxation" #hi%h means that dire%t taxes are to be preferred and indire%t taxes minimi8ed. @AT provides exemptions in favor of basi% 'oods utili8ed b& the lo#er in%ome bra% ets and its burden a%tuall& falls more on those 'oods that %onsumers from the hi'her in%ome bra% et bu&. Therefore" the tax is not repu'nant to the Constitution.

A-AFADA v Er#i!a R.A. H33B $ the ?@AT Fa# #as ena%ted in Ea& ;005. This la#/ :) authori8ed the President" upon re%ommendation of the >e%retar& of Ainan%e" to raise !$e 1AT ra!e ! 6@G e))ec!ive <anuar& 6, @BB7 " if t#o %onditions are satisfied/ o @AT %olle%tion as a per%enta'e of J4P of the previous &ear ex%eeds ; <$5 3 o )ational 'overnment defi%it as a per%enta'e of J4P of the previous &ear ex%eeds : M3 o maintainin' the rate of :03 until the %onditions above too pla%e

It also inserted a provision imposin' a B03 limit on the amount of input tax to be %redited a'ainst the output tax. Petitions #ere thus filed assailin' the %onstitutionalit& of the la#/ o A9AQA4A ar'ued that Con'ress abandoned its ex%lusive authorit& to fix taxes b& 'ivin' the President the authorit& upon the Ainan%e >e%1s re%ommendation to raise @AT to :;3 o >en. Pimentel and Rep. ?s%udero ar'ued that the la# #as an undue dele'ation of le'islative po#ers and a violation of due pro%ess o Pilipinas >hell dealers ar'ued that the @AT reform #as arbitrar&" oppressive and %onfis%ator&. *n the other hand" respondents %ountered that the la# #as %omplete" that it left no dis%retion to the President" and that it merel& %har'ed the President #ith %arr&in' out the rate in%rease on%e an& of the ; %onditions arise. I/ 0$n RA H33B is %onstitutional R/ C?>" it is valid and %onstitutional. :) .a; ;as NOT an un"ue "ele'a!i n ) le'isla!ive p ;er Con'ress didn1t dele'ate the po#er to tax but the mere implementation of the la# ( the as%ertainment of fa%ts %ontin'ent on %onditions alread& provided. In this %ase" the le'islature made the operation of the :;3 rate %ontin'ent upon ; spe%ified %onditions. Thus" no dis%retion #ould be exer%ised b& the President" and he #ould onl& exer%ise the ministerial dut& of imposin' the :;3 rate. Eoreover" the President %an1t alter or modif& $ nullif& $ set aside the findin's of fa%t of the >e%retar& of Ainan%e" #ho #ill as%ertain the said %onditions be%ause the >oA #ill not a%t as alter e'o of President but AJ?)T of the le'islative department. ;) T$e 6@G increase " es NOT i#p se an un)air an" unnecessar& a""i!i nal !a% bur"en. 9e%ause of the %ountr&1s 'loom& states of e%onomi% affairs" it is ne%essar& to raise revenue to meet 'overnment expenditures. 3) T$e >BG li#i!a!i n n inpu! !a% " es NOT vi la!e "ue pr cess an" EPC Input tax is )*T a propert& ri'ht but a >TAT5T*RC privile'e" #$% ma& be re'ulated. 9esides" the unutili8ed input tax ma& be %redited in the subse-uent periods or even refunded" so it is )*T %ompletel& lost. )either does it violate ?PC #$ re'ard to the 53 %reditable #ithholdin' tax imposed on pa&ments made b& the 'overnment for TAGA9F? TRA)>ACTI*)>. This is be%ause it is applied e-uall& to members of the same %lass. Taxable transa%tions #ith the 'overnment are sub=e%t to a uniform 53 rate" in %ontrast to its different rates prior to amendment. It is %lear that Con'ress intended to treat differentl& taxable transa%tions #ith the 'overnment. <) T$e la; is c nsis!en! ;+ Uni) r#i!& an" E9ui!abili!& ) Ta%a!i n 5niformit& of taxation means that all taxable arti%les$propert& of the >AE? CFA>> be taxed at the >AE? RAT?. In this %ase" the tax la# is uni) r# as it provides for a standard rate of :03 $ :;3 on all 'oods and servi%es. It does )*T even ma e an& distin%tion as to the t&pe of industr& $ trade that #ill bear the B03 limitation on the %reditable input tax" 5&ear amorti8ation of input tax paid on pur%hase of %apital 'oods or the 53 final #ithholdin' tax b& the 'overnment. The la# is also e9ui!able be%ause it is e-uipped #ith a threshold mar'inUthe :0$:;3 @AT? rate #ill not appl& to the sale of 'oods #$ 'ross annual sales at P:.5 or belo#. >mall %orner sari.sari stores are %onse-uentl& exempt from its appli%ation.

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5) ?ven if @AT is re'ressive" it is still %onstitutional. The %onstitution does )*T prohibit the imposition of indire%t taxes $ a re'ressive s&stem of taxation. It simpl& provides that Con'ress shall ?@*F@? a pro'ressive s&stem of taxation" meanin' dire%t taxes must be preferred to indire%t taxes. In the %ase of the @AT" the la# minimi8es the re'ressive effe%ts of this imposition b& providin' for 8ero ratin' of %ertain transa%tions.

,isa#is Orien!al Ass cia!i n ) C c Tra"ers v. Dep!. ) Finance Secre!ar& The )IRC exempts from @AT the sale of a'ri%ultural non.food produ%ts in their ori'inal state if the sale is made b& the primar& produ%er or o#ner of the land from #hi%h the same are produ%ed. The sale made b& an& other person $ entit&" li e a trader or dealer" is )*T exempt from the tax. A revenue memorandum %ir%ular #as issued" re%lassif&in' C*PRA into an a'ri%ultural non.food produ%t. Eisamis *riental" #$% #as en'a'ed in the bu&in' and sellin' of %opra" %laimed that the memorandum %ir%ular #as dis%riminator& and violative of the e-ual prote%tion %lause be%ause #hile %o%onut farmers and %opra produ%ers are exempt" TRA4?R> and 4?AF?R> are )*T" althou'h both sell %opra in its ori'inal state. I/ 0$n there #as a violation of e-ual prote%tion. R/ )*" it #as not violative of ?PC The Constitution does not forbid the differential treatment of persons so lon' as there is a R?A>*)A9F? basis for %lassif&in' them differentl&. In this %ase" there is a material or substantial differen%e bet#een %o%onut farmers and %opra produ%ers" on the one hand" and %opra traders and dealers" on the other. The farmers$ produ%ers PR*45C? and >?FF %opra" #hile traders and dealers merel& >?FF %opra. The Constitution does not forbid the differential treatment of persons so lon' as there is a reasonable basis for %lassif&in' them differentl&. CIR v. CA Aortune Toba%%o Corp. is en'a'ed in the manufa%ture of different brands of %i'arettes. The Philippine Patent *ffi%e issued to the %orporation %ertifi%ates of trademar re'istration over 6Champion"7 6Dope"7 and 6Eore7 %i'arettes. Initiall&" the CIR %lassified the brands as A*R?IJ) 9RA)4> sin%e the& #ere listed in the 0orld Toba%%o 4ire%tor& as belon'in' to forei'n %ompanies. Do#ever" Aortune Toba%%o %han'ed the names as follo#s/ o 6Dope7 to 6Dope Fuxur&7 o 6Eore7 to 6Premium Eore7 TD5>" the& #ere removed them from the forei'n brand %ate'or&. A %ertifi%ation #as presented to sho# that 6Champion7 #as an ori'inal Aortune Toba%%o brand. The three brands #ere therefore taxed ad valorem as lo%al brands. >ubse-uentl&" RA BL5< #as passed amendin' the )IRC provisions on %i'arettes. The said la# imposed a 553 tax on lo%all& manufa%tured %i'arettes bearin' a A*R?IJ) brand and <53 tax on %i'arettes bearin' a F*CAF brand.

After the ena%tment of RA BL5< but 9?A*R? its effe%tivit&" the 9IR issued a %ir%ular re%lassif&in' the three brands as forei'n brands. Pursuant to RA BL5<" the CIR assessed Aortune Toba%%o for ad valorem tax defi%ien%& amountin' to PH.5E. Aortune filed a petition for revie# #ith the CTA. The CTA upheld the stand of Aortune" statin' that at the time of the ena%tment of RA BL5<" the three brands #ere still %lassified as lo%al brands and %ould thus )*T be assessed the 553 tax" but onl& the <53 tax. This #as affirmed b& the CA I/ 0$n the 553 tax %lassifi%ation as forei'n brands #as valid R/ )*" it #as )*T valid. The& are lo%al brands. :) T$e -IR circular vi la!e" "ue pr cess. The 9IR ma& issue rules in the exer%ise of its -uasi.le'islative po#ers" but these rules must be merel& interpretative in nature. It %annot 'o be&ond providin' for the means that %an fa%ilitate the implementation of the la#. In this %ase" the %ir%ular issued b& the 9IR imposin' the 553 tax rate did not simpl& interpret the la# 95T le'islated under its -uasi.le'islative authorit&. Thus" the re-uirements of noti%e" hearin'" and publi%ation should not have been then i'nored. ;) T$e circular in)rin'e" n uni) r#i!& ) !a%a!i n . The Constitution re-uires taxation to be uniform and e-uitable. 5niformit& re-uires that all taxable arti%les or inds of propert& of the same %lass must be taxed at the same rate" and the tax must operate #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t ma& be found. In this %ase" other %i'arettes bearin' forei'n brands #ere )*T in%luded #ithin the s%ope of the %ir%ular. A%%ordin' to Commissioner Chato" the reason for leavin' out the other brands #as be%ause there #as not enou'h time to in%lude them. Thus" the %ir%ular #as hastil& promul'ated" in violation of the rule on uniformit& of taxation.

CIR v. .in'a&en Gul) Elec!ric P ;er C . Inc Fin'a&en Julf" an ele%tri% po#er plant operator" #as the 'rantee of a muni%ipal fran%hise to suppl& ele%tri%it& in Pan'asinan. It #as sub=e%t to a ;3 fran%hise tax under the muni%ipal fran%hise. The CIR assessed Fin'a&en a defi%ien%& fran%hise tax" %omputed at 53" based on the rate pres%ribed b& the )IRC" instead of the lo#er rates as provided in the muni%ipal fran%hises. Fin'a&en re-uested for a reinvesti'ation 'iven that instead of in%urrin' a defi%ien%& liabilit&" it made an overpa&ment of the fran%hise tax. This #as denied b& the CIR so Fin'a&en appealed to the CTA. In the meantime" RA 32<3 #as passed 'rantin' Fin'a&en a le'islative fran%hise to suppl& ele%tri% %urrent to the publi%" sub=e%t to ;3 fran%hise tax. The CIR %laimed that the la# #as un%onstitutional for bein' violative of the uniformit& and e-ualit& of taxation %lause of the Constitution sin%e other similar fran%hises #ere sub=e%t to a 53 fran%hise tax imposed b& the Tax Code. CTA dismissed CIR1s %laim and ruled that the provisions of RA 32<3 should appl&. I/ 0$n RA 32<3 violates the rule on uniformit& and e-ualit& of taxation R/ )o.

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A tax is uniform #hen it operates #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t of it is found. 5niformit& means that all propert& belon'in' to the same %lass shall be taxed ali e. The Fe'islature has the inherent po#er not onl& to sele%t the sub=e%ts of taxation but to 'rant exemptions. TAG ?G?EPTI*)> have never been deemed violative of the e-ual prote%tion %lause. In this %ase" althou'h Fin'a&en1s muni%ipal fran%hises #ere obtained under A%t )o. LLB of the Philippine Commission" these ori'inal fran%hises have been repla%ed b& a ne# le'islative fran%hise" RA 32<3. Fin'a&en1s po#er plant falls #ithin the %lass of po#er plants %reated b& A%t )o. 3L3L" as amended b& C.A. )o. :3; and RA 32<3. RA 32<3 merel& transferred the petitionerRs po#er plant from that %lass provided for in A%t )o. LLB" until the approval of RA 32<3. Thus" the la# merel& transferred Fin'a&en1s po#er plant from its former %lass to #hi%h it belon'ed. All po#er plants belon'in' to this parti%ular %lass #ere sub=e%t to the same ;3 tax and therefore" the rule on uniformit& #as not violated.

Fapa!iran n' #'a Na'lilin'/ " sa Pa#a$alaan n' Pilipinas v. Tan President A-uino issued ?* ;B3" adoptin' the value.added tax (@AT). Aour petitions %ontended that ?* ;B3 is un%onstitutional on the 'rounds that the President had no authorit& to issue it, that it is oppressive" dis%riminator&" un=ust" and re'ressive. I/ 0$n the ?* ;B3" adoptin' @AT" is valid. R5 The ?* is valid. 5nder the Provisional and :H2B Constitutions" the President is vested #ith le'islative po#ers until a le'islature under a ne# Constitution is %onvened. In this %ase" the ?* #as ena%ted ; da&s before Con'ress %onvened. Therefore" the ?* #as still #ithin the President1s po#er to issue. ?* ;B3 is not oppressive" dis%riminator&" un=ust" or re'ressive. It satisfies all the re-uirements of a valid tax in that it is uniform and e-uitable. A tax is %onsidered uniform #hen it operates #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t ma& be found. In this %ase" the tax is applied similarl& on all 'oods and servi%es sold to the publi%" #hi%h are not exempt" at the %onstant rate of 03 or :03. The tax is also e-uitable be%ause it is imposed *)FC on sales of 'oods or servi%es b& persons en'a'ed in business #ith an a''re'ate 'ross annual sales ex%eedin' ;00Q. Thus" small %orner sari.sari stores" sales of marine and farm produ%ts and basi% food and ne%essities are not %overed b& @AT. Customs bro ers %ontend that the ?* is also dis%riminator& be%ause it exempts from @AT servi%es performed in the exer%ise of one1s profession except customs brokers. The distin%tion is based on material differen%es in that the a%tivities of %ustoms bro ers parta e more of a business rather than a profession.

The amendment provided a different s%hedule of tax rates for %ompensation in%ome and net in%ome. It provided that/ o The tax base for those earnin' %ompensation in%ome at fixed rates #ould be JR*>> I)C*E?" o The tax base for the in%ome of businesses and professionals #ould be )?T I)C*E? >ison" as taxpa&er" %hallen'ed the validit& of the amendment on the 'round that he #ould be undul& dis%riminated a'ainst b& the imposition of hi'her rates of tax upon his in%ome arisin' from the exer%ise of his profession as %ompared to those #hi%h are imposed upon fixed in%ome or salaried individual taxpa&ers. De %laims that it amounts to %lass le'islation" in violation of ?PC" due pro%ess and the rule on uniformit& in taxation. I/ 0$n it is violative of ?PC" dp and the rule on uniformit& in taxation R/ )*P 6H 4ue pro%ess %lause ma& onl& be invo ed #here a taxin' statute is so arbitrar& that it finds no support in the Constitution. (ie. 0hen it amounts to %onfis%ation of propert& $ not used for a publi% purpose) @H As ) r EPC, !he Constitution does not re-uire thin's #hi%h are different be treated the same. It is inherent in the po#er to tax that a state be free to sele%t the sub=e%ts of taxation and Rine-ualities #hi%h result from a sin'lin' out of one parti%ular %lass for taxation" or exemption infrin'e no %onstitutional limitation. IT$us, !$ere ;as n vi la!i n ) "ue pr cess r EPC. :H T$ere ;as als n vi la!i n ) uni) r#i!&. 5niformit& does )*T %all for perfe%t e-ualit&. It merel& means that all taxable arti%les $ propert& of the same %lass shall be taxed at the same rate. The taxin' po#er has the authorit& to ma e reasonable and natural %lassifi%ations for purposes of taxation. In this %ase" there is a dis%ernible basis of %lassifi%ation" #hi%h is the SUSCEPTI-I.ITC ) !$e inc #e ! !$e applica!i n ) 'enerali*e" rules re# vin' all "e"uc!ible i!e#s ) r all !a%pa&ers ;i!$in !$e class an" )i%in' a se! ) re"uce" !a% ra!es ! be applie" ! all ) !$e#. Taxpa&ers #ho are re%ipients of %ompensation in%ome are set apart as a %lass. As there is pra%ti%all& no overhead expense" these taxpa&ers are not entitled to ma e dedu%tions for in%ome tax purposes be%ause the& are in the same situation more or less. *n the other hand" in the %ase of professionals in the pra%ti%e of their %allin' and businessmen" there is n uni) r#i!& in !$e c s!s r e%penses necessar& ! pr "uce !$eir inc #e. It #ould not be =ust to disre'ard the disparities b& 'ivin' all of them 8ero dedu%tion and indis%riminatel& impose on all ali e the same tax rates on the basis of 'ross in%ome. There is ample =ustifi%ation for the la# to adopt 'ross s&stem of in%ome taxation to %ompensation in%ome" #hile %ontinuin' the s&stem of net in%ome taxation as re'ards the professional and business in%ome.

Sis n v. Anc$e!a 9P :35 amended >e%tion ;: of the )ational Internal Revenue Code.

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1ille'as v. Hiu C$i n' Tsai Pa H The Euni%ipal 9oard of Eanila passed an ordinan%e prohibitin' an alien from bein' emplo&ed or en'a'in' in an& position or o%%upation or business enumerated therein" #hether permanent" temporar&" or %asual" #ithout first se%urin' an emplo&ment permit from the Ea&or and pa&in' the P50 permit fee. Diu Chion' filed an a%tion to restrain the enfor%ement of the ordinan%e and to have it de%lared null and void for bein' dis%riminator& and violative of the rule on uniformit& in taxation. The Ea&or ar'ued that the ordinan%e %annot be de%lared null and void on the 'round that it violates the rule on uniformit& of taxation be%ause this rule applies onl& to purel& tax or revenue measures and not to re'ulator& measures" su%h as the ordinan%e. I/ 0$n the ordinan%e is valid. R/ )*" the ordinan%e is void. The first part of the ordinan%e re-uirin' an alien to se%ure an emplo&ment permit is re'ulator& in %hara%ter be%ause it involves the exer%ise of dis%retion on the part of the Ea&or in approvin' or disapprovin' the appli%ations. Do#ever" the se%ond part #hi%h re-uires the pa&ment of P50 as emplo&ee1s fee is not re'ulator& but a revenue measure. There is no lo'i% or =ustifi%ation in exa%tin' P50 from aliens #ho have been %leared for emplo&ment. The obvious purpose of the ordinan%e is to raise mone& under the 'uise of re'ulation. The P50 fee is unreasonable not onl& be%ause it is ex%essive but be%ause it fails to %onsider valid substantial differen%es in situation amon' individual aliens #ho are re-uired to pa& it. The same amount is bein' %olle%ted from ever& emplo&ed alien" #hether he is %asual or permanent" part time or full time" or #hether he is a lo#l& emplo&ee or a hi'hl& paid exe%utive. 1illanueva v. Ci!& ) Il il 5 Uni) r#i!&

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The muni%ipal board of Iloilo ena%ted *R4I)A)C? :: (series of :H20) imposin' 2L li%ense tax fees on persons en'a'ed in the business of operatin' tenement houses ((tenement house ( an& buildin' or d#ellin' for rentin' spa%e divided into separate apartments or a%%essories). The @illanuevas" o#ners of < tenement houses %ontainin' 3< apartments" %hallen'ed the validit& of su%h ordinan%e be%ause onl& the taxpa&ers of the Cit& of Iloilo are sin'led out to pa& taxes on their tenement houses" #hile %iti8ens of other %ities" #here their %oun%ils do not ena%t a similar tax ordinan%e are permitted to es%ape su%h imposition. Fo#er %ourt rendered the ordinan%e ille'al as it is oppressive and unreasonable" %onstitutes double taxation and violates uniformit&. I/ 0$n the ordinan%e violates the rule on e-ualit& and uniformit& in taxation. R/ )*. :) The rule on e-ualit& and uniformit& does not re-uire that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. Taxes are uniform and e-ual #hen imposed upon all propert& of the same %lass or %hara%ter #ithin the taxin' authorit&. In this %ase" tenement buildin's %onstitute a distin%t %lass of propert&. ;) Contrar& to petitionersR assertion that the tax in -uestion is a R?AF ?>TAT? tax" this ar'ument %annot be sustained. The tax is not a fixed proportion of the assessed value of the tenement houses" and does not re-uire the intervention of assessors or appraisers. It is not pa&able at a desi'nated time or date" and is not enfor%eable a'ainst the tenement houses either b& sale or distraint. RATD?R" it is seen from the %ontext of the ordinan%e that the intention is to impose a li%ense tax on the operation of tenement houses" #hi%h is a form of business or %allin'. 3) Also" the petitionersR %ontention that the& are doubl& taxed be%ause the& are pa&in' the real estate taxes and the tenement tax imposed b& the ordinan%e in -uestion is devoid of merit. A li%ense tax ma& be levied upon a business or o%%upation althou'h the land or propert& used in %onne%tion there#ith is sub=e%t to propert& tax. This #ould not %onstitute double taxation be%ause there is onl& double taxation #hen the >AE? PR*P?RTC $ >59?CT EATT?R is taxed t#i%e for the same purpose" #$in the same =urisdi%tion and period" and of the same ind of %hara%ter of tax. Real estate and tenement tax aer )*T of the same ind $ %hara%ter. At all events" there is no %onstitutional prohibition a'ainst double taxation in the Philippines. It is somethin' not favored" but is permissible" provided some other %onstitutional re-uirement is not thereb& violated" su%h as the re-uirement that taxes must be uniform.

Pepsi filed an a%tion to nullif& the ordinan%e on the 'round that it parta es of the nature of an import tax and is hi'hl& un=ust and dis%riminator&. I5 4+n !he ordinan%e is valid R5 The ordinan%e is null and void. :) The tax is dis%riminator& and violative of uniformit& be%ause it is levied onl& on those persons #ho are a'ents or %onsi'nees of another dealer" #ho must be one en'a'ed in business outside the %it&. Thus" lo%al dealers (#$in %it&) )*T a%tin' for or on behalf of other mer%hants #ould be exempt from the tax. ;) Eoreover" the tax shall be based on the number of bottles re%eived" )*T >*F4" b& the taxpa&er. These %ir%umstan%es sho# that the ordinan%e is limited in appli%ation to those soft drin s brou'ht into the Cit& from outside thereof. The tax thus parta es of the nature of an import dut&" #hi%h is be&ond the authorit& of the %it& to impose b& express provision of la#. 3) In order for valid %lassifi%ation to ta e pla%e it must be 'ermane to purpose of la#" rest on substantial distin%tions" appl& e-uall& to all members of same %lass" appl& to present and future %onditions. There is no valid %lassifi%ation here be%ause if the purpose of the la# #ere merel& to lev& a burden upon the sale of soft drin s" there is no reason #h& sales thereof b& dealers other than a'ents or %onsi'nees of produ%ers or mer%hants outside the %it& should be exempt from the tax. *n double taxation ar'ument/ double taxation" in 'eneral" is not forbidden b& our fundamental la#" so it %annot be sustained.

Pepsi3C la - !!lin' C . ) !$e P$il. v. Ci!& ) -u!uan5 Uni) r#i!& The Cit& of 9utuan ena%ted an ordinan%e imposin' on an& a'ent and$or %onsi'nee of an& entit& en'a'ed in sellin' soft drin s a tax of :0 %ents per %ase of ;< bottles to be paid at the end of ever& month. The tax shall be based from the %ar'o manifest" bill of ladin'" or on an& re%ord sho#in' the number of %ases received #ithin the month. The ordinan%e provides that the revenue derived from su%h Oshall be alloted as follo#s/ <03 for Roads and 9rid'es Aund, <03 for the Jeneral Aund and ;03 for the >%hool Aund.

Or# c Su'ar C . v. Treasurer ) Or# c Ci!&5 Uni) r#i!& an" E9ual Pr !ec!i n The Euni%ipal 9oard of *rmo% Cit& passed *rdinan%e )o < imposin' a muni%ipal tax of :3 per export sale of su'ar milled at the *rmo% >u'ar Compan&. *rmo% -uestioned the validit& of the ordinan%e on the 'round that it violated the e-ual prote%tion %lause and the rule of uniformit& in taxation. I/ 0$n the ordinan%e is valid. R/ )*" it is )*T. The Fo%al Autonom& A%t 'ave %hartered %ities" muni%ipalities and muni%ipal distri%ts authorit& to lev& for publi% purposes =ust and uniform taxes" li%enses or fees. Aor a tax to be =ust and uniform" it must appl& e-uall& to thin's identi%all& situated. D*0?@?R" %lassifi%ation %an be made as lon' as it is be 'ermane to purpose of la#" rest on substantial distin%tions" appl& e-uall& to all members of same %lass" appl& to present and future %onditions. In this %ase" the tax imposed is violative of the e-ual prote%tion %lause. 0hen the taxin' ordinan%e #as ena%ted" *rmo% >u'ar #as the *)FC su'ar %entral in the %it&. A reasonable %lassifi%ation should be in terms appli%able to future %onditions as #ell. The taxin' po#er should not be sin'ular and ex%lusive as to ex%lude an& subse-uent established su'ar %entral from the %overa'e of the tax. A subse-uentl& established su'ar %entral %annot be sub=e%t to tax be%ause the ordinan%e expressl& points to *rmo% >u'ar Compan& In% as the entit& to be levied upon. .u!* v. Arane!a3 Uni) r#i!&

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Common#ealth A%t 5LB or the >u'ar Ad=ustment A%t" #as promul'ated in :H<0 in response to the imminent threat to the su'ar industr& b& the imposition of export taxes upon su'ar as provided in the T&din's.E%4uffie A%t" and the eventual loss of its preferential position in the 5> mar et. In order to stabili8e the su'ar industr& to prepare for the loss" CA 5LB provided for an I)CR?A>? in the existin' tax on the manufa%ture of su'ar (on a 'raduated basis)" the pro%eeds of #hi%h #ould a%%rue to the >u'ar Ad=ustment and >tabili8ation Aund (a spe%ial fund in the Phil Treasur&). 0alter Fut8" in his %apa%it& as administrator of the ?state of Antonio Fedesma" #anted to re%over from the Colle%tor of Internal Revenue the amount paid b& the estate as taxes" alle'in' that the tax imposed b& CA 5LB is un%onstitutional" bein' levied for the aid and support of the su'ar industr& ex%lusivel&" #hi%h is )*T a publi% purpose. I/ 0$n the tax is un%onstitutional be%ause it is not devoted to a publi% purpose. R/ )*" it is validP It is inherent in the po#er to tax that a state be free to sele%t the sub=e%ts of taxation. Ine-ualities #hi%h result from a sin'lin' out of one parti%ular %lass for taxation or exemption infrin'e no %onstitutional limitation. It does not matter that the funds raised under the >u'ar >tabili8ation A%t should be ex%lusivel& spent in aid of the su'ar industr&" sin%e it is that ver& enterprise that is bein' prote%ted, le'islature is not re-1d b& the Consti to adhere to the poli%& of 6all or none.7 Fastl&" the taxation does not %onstitute expenditure of tax mone& for private purposes" sin%e the funds #ill be used to in%rease su'ar produ%tion" solve problems and improve #or in' %onditions in su'ar mills.

Eas!ern T$ea!rical C . Inc v. Al) ns 5 E9uali!& an" Uni) r#i!& The Cit& of Eanila ena%ted an ordinan%e imposin' a fee on the pri%e of ever& admission ti% et sold b& %inemato'raphers" theatres" vaudeville %ompanies and boxin' exhibitions. These fees shall be delivered b& the operator ; da&s after the performan%e. *ther#ise" a violation should result to imprisonment and fine. Thus" :; %orporations en'a'ed in motion pi%ture business filed a %omplaint assailin' the said ordinan%e for violatin' the prin%iple of e-ualit& and uniformit& of taxation be%ause it did )*T tax other pla%es of amusement" su%h as ra%etra% s" %abarets" %ir%uses" et%. I/ 0$n the ordinan%e violates the rule on e-ualit& and uniformit& of taxation. R/ ?-ualit& and uniformit& in taxation means that all taxable arti%les or inds of propert& of the same %lass shall be taxed at the same rate. The taxin' po#er has the authorit& to ma e reasonable and natural %lassifi%ations for purposes of taxation. Thus" the fa%t that some pla%es of amusement are taxed #hile others li e theatres and %inemato'raphs are not does not violate uniformit& and e-ualit& in taxation. Petitioners ar'ued that the Revised Administrative Code %onfers upon the Cit& of Eanila the po#er to impose a tax on business but )*T on amusement and" %onse-uentl&" the ordinan%e #as be&ond the Cit&Rs po#er to ena%t. D*0?@?R" the assumption is based on an arbitrar& labelin' of the ind of tax authori8ed b& the said Code. The ver& fa%t that the said Code in%ludes in%ludes theaters" %inemato'raphs" et%. #ill sho# %on%lusivel& that the po#er to tax amusement is expressl& in%luded #ithin the po#er 'ranted b& the said Code. P$il. Trus! C . v. Ca!c 5 Uni) r#i!& >everal ban s doin' business in the Philippines" in%ludin' Phil Trust and Peoples 9an " assailed the validit& of the Revised Administrative Code for bein' dis%riminator& and violative of the rule on uniformit& in taxation. This is be%ause the said la# imposes a tax on %apital" deposits" and %ir%ulation on all ban s doin' business in the Phils" #hile exemptin' the )ational Cit& 9an of )e# Cor . I/ 0$n the la# violates the rule of uniformit& in taxation. R/ )o" it does )*T violate uniformit&. The exemption of an instrumentalit& of the Aederal Jovernment ()C9)C) does )*T deprive the Common#ealth of the Philippines of the po#er to tax the %ompetitors of )C9)C. A tax is %onsidered uniform #hen it operates #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t ma& be found. The rule of uniformit& does not %all for perfe%t uniformit& or perfe%t e-ualit&" be%ause this is hardl& attainable. In this %ase" the -uestioned statute applies uniforml& to all ban s in the Philippines #ithout distin%tion and dis%rimination. If the )ational Cit& 9an is exempted from its operation be%ause it is a federal instrumentalit& sub=e%t onl& to the authorit& of Con'ress" that alone %ould not have the effe%t of renderin' it violative of the rule of uniformit&. Also" a state ma& impose a different rate of taxation upon a forei'n %orporation for the privile'e of doin' business #ithin the state than it applies to its o#n %orporations upon the fran%hise #hi%h the state 'rants in %reatin' them.

Ass cia!i n ) Cus! #s -r /ers v. ,unicipal - ar"5 Uni) r#i!& The Euni%ipal 9oard of Eanila passed an ordinan%e lev&in' a propert& tax on all motor vehi%les operatin' #ithin the Cit& of Eanila. The ordinan%e provided that the rate of the tax #ould be :3 ad valorem per annum" and that the pro%eeds of the tax shall a%%rue to the >treets and 9rid'es Aunds of the Cit&" #$% #ill be used for the repair" maintenan%e" and improvement of its streets and brid'es. The Charter of Eanila 'ives the muni%ipal board the po#er to tax motor vehi%les" but this is limited b& the Eotor @ehi%les Fa#" #hi%h disallo#s the imposition of fees on motor vehi%les" ?GC?PT propert& taxes imposed b& a muni%ipal %orp. TD5>" the la# allo#s the Cit& of Eanila to impose a propert& tax on motor vehi%les operatin' #ithin its limits. Do#ever" the Asso%iation of Customs 9ro ers %ontended that the ordinan%e is void be%ause it a%tuall& imposes a li%ense tax in the 'uise of a propert& tax. I/ 0$n ordinan%e is valid R/ )*" it is voidP The ordinan%e infrin'es the rule of uniformit& of taxation. This is be%ause it exa%ts the tax upon all motor vehi%les operatin' #ithin the Cit& of Eanila" #ithout distin'uishin' bet#een those for DIR? and for PRI@AT? 5>?" as #ell as those R?JI>T?R?4 I) EA)IFA and those R?JI>T?R4 *5T>I4? 95T *CCA>>I*)AFFC C*E? T* EA)IFA. The ordinan%e imposes the tax *)FC on those vehi%les re'istered in Eanila" even if those vehi%les #hi%h are re'istered outside the %it& but #hi%h use its streets also %ontribute e-uall& to the deterioration of the roads and brid'es.

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The argument that the 3evised )dministrative Code was declared unconstitutional by the &upreme Court of the =nited &tates insofar as the 6CB6: is erroneous. 9osadas v. 6ational City Bank held that the 6CB6: in the 9hilippines was established by virtue of the Federal 3eserve )ct, w;c which authori(ed the establishment of branches of national banking associations in foreign countries or dependencies of the =nited &tates. )lso it was held in 2eomenech v 6ational City Bank that >a dependency may 67T tax its sovereign> and the 9hilippines is a possession and dependency of the =&.

C$urc$ill v. C ncepci n5 Uni) r#i!& A%t ;<3; amendin' A%t ;33H #as passed imposin' an annual tax of P; per s-uare meter upon ele%tri% si'ns" billboards" and spa%es used for postin' or displa&in' temporar& si'ns and all si'ns displa&ed on premises not o%%upied b& buildin's. Chur%hill and Tait" %o.partners doin' business under the firm Eer%antile Advertisin' A'en%& #ere o#ners of a billboard %onstru%ted on private propert& in Eanila. The& #ere taxed P:0<. The& paid under protest. >ubse-uentl&" the filed a %omplaint a'ainst the CIR" assailin' the validit& of the tax for la% of uniformit& be%ause it #as not 'raded a%%ordin' to value and #as %lassified arbitraril& #ithout reasonable 'round. I/ 0$n the la# violates the rule on uniformit&. R/ )o" it does )*T violate the uniformit& rule. 5niformit& in taxation means that all taxable arti%les or inds of propert& of the same %lass shall be taxed at the same rate. A tax is uniform #hen it operates #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t is found. 5niformit& does not si'nif& an intrinsi%" but simpl& a 'eo'raphi%al uniformit&. In this %ase" the P;$s-. meter tax is imposed on ever& ele%tri% si'n or billboard #herever found in the Philippines. The rule of uniformit& does not re-uire taxes to be 'raded a%%ordin' to the value of the sub=e%t upon #hi%h the& are imposed" espe%iall& those levied as privile'e or o%%upation taxes. Also" the fa%t that the land upon #hi%h the billboards are lo%ated is taxed at so mu%h per unit and the billboards at so mu%h per s-uare meter does not %onstitute Odouble taxation.O 4ouble taxation does not ne%essaril& affe%t its validit&. -ri!is$ A#erican T bacc v Ca#ac$ R.A. 2;<0 #as passed re%odif&in' the )IRC #here >e% :<; #as renumbered >e% :<5. 9ritish Ameri%an Toba%%o assailed the validit& of >e%. :<5 of the )IRC (amended b& RA 2;<0)" ar'uin' that the said provisions are violative of the e-ual prote%tion and uniformit& %lause of the Constitution. >e%tion :<5 provides for a four.tier tax rate based on net retail pri%e per pa% of %i'arettes/ (:) lo#.pri%ed" (;) medium.pri%ed" (3) hi'h.pri%ed" and (<) premium. pri%ed. >e%tion :<5 further provides that )?0 9RA)4> (re'istered after Kanuar& :" :HHB) of %i'arettes shall be taxed at their %urrent retail pri%e. If the %urrent net

retail pri%e has not been established" the su''ested net retail pri%e shall be used to determine the spe%ifi% tax %lassifi%ation. *n the other hand" old or existin' brands (re'istered before Kanuar& :" :HHB) shall be taxed at their net retail pri%e as of *%tober :" :HHL. o 6et retail price ? price @ which cigarettes are sold on retail in $A supermarkets in 88 o &uggested net retail price ? net retail price @ which brands of cigarettes are intended by the manufacturer to be sold To implement RA 2;<0" 9IR issued a Revenue Re'ulation (RR )o. :.HB) %lassif&in' existin' brands of %i'arettes as those existin' or a%tive (old) brands prior to Kanuar& :" :HHB" #hile ne# brands of %i'arettes are those re'istered after Kanuar& :" :HHB. Another Revenue Re'ulation #as issued amendin' the first (RR )o. H.;003) b& providin' 9IR #ith the po#er to periodi%all& revie# ever& t#o &ears $ earlier the %urrent net retail pri%e of ne# brands to ?>TA9FI>D $ 5P4AT? their tax %lassifi%ation. In Kune ;00:" 9ritish Ameri%an Toba%%o introdu%ed the Fu% & >tri e Ailter" Fu% & >tri e Fi'hts and Fu% & >tri e Eenthol Fi'hts. Fu% & >tri e #as taxed based on its su''ested 'ross retail pri%e from the time of its introdu%tion in the mar et in ;00: until the 9IR mar et surve& in ;003. The brands #ere sold at P;;.5<" P;;.L: and P;:.;3 so the appli%able tax rate is P:3.<< per pa% . 9AT no# ar'ues that the O%lassifi%ation free8e provisionO violates the e-ual prote%tion and uniformit& of taxation %lauses be%ause the Fu% & >tri e brands are taxed based on their :HHL net retail pri%es #hile ne# brands are taxed based on their present da& net retail pri%es. Thus" Fu% & >tri e suffers from hi'her taxes #hile its %ompetitors pa& a lo#er amount. 9AT further ar'ued that the toba%%o ex%ise la# #as dis%riminator& be%ause under it" brands that entered the mar et after :HHL #ere imposed taxes based on their %urrent retail pri%es #hile older brands paid taxes based on their :HHL retail pri%es. Eean#hile" Philip Eorris" Aortune Toba%%o" Ei'ht& Corp. and KT International (respodnents.in.intervention) %laim that no ine-ualit& exists bet#een %i'arettes and that nullifi%ation of said annex #ould brin' about tremendous loss. I/ :. 0$n >e%. :<5 of the )IRC violates ?PC and uniformit& of taxation %lauses 0$) the Revenue Re'ulations are invalid in so far as the& empo#er 9IR to re%lassif& and update the %lassifi%ation of ne# brands ever& t#o &ears or earlier R/ >e% :<5 )IRC is %onstitutional but the RRs are invalid for 'ratnin' the 9IR the po#er to re%lassif& and update the %lassifi%ation. :) )IRC is %onstitutional The %lassifi%ation free8e provision does not violate the e-ual prote%tion and uniformit& of taxation. It meets the standards for valid %lassifi%ation/ rests on a substantial distin%tion" is 'ermane to the purpose of the la#" applies to present and future %onditions and applies e-uall& to all those belon'in' to the same %lass. ()*T?/ The se%ond %ondition" ho#ever" #as not full& satisfied as it failed to promote fair %ompetition amon' the pla&ers in the industr&. Do#ever" this does not ma e the assailed la# un%onstitutional) The %lassifi%ation free8e provision #as done in 'ood faith and is 'ermane to the purpose of the la#. It #as inserted for reasons of pra%ti%alit& and expedien%&. >in%e a ne# brand #as not &et in existen%e at the time of the passa'e of RA 2;<0" then Con'ress needed a uniform me%hanism to fix the tax bra% et of a ne# brand. The %urrent net retail pri%e" similar to #hat #as used to %lassif& the brands as of *%tober :" :HHL" #as thus the lo'i%al and pra%ti%al %hoi%e.

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0ith the amendments introdu%ed b& RA H33<" the free8in' of the tax %lassifi%ations no# expressl& applies not =ust to old brands (%i'arettes #hi%h are taxed on the basis of avera'e net retail pri%e as of *%tober :" :HHL) but to ne#er brands introdu%ed after the effe%tivit& of RA 2;<0 on Kanuar& :" :HHB and an& ne# brand that #ill be introdu%ed in the future. Thus" the %lassifi%ation free8e provision %ould hardl& be %onsidered biased to#ared older brands over ne#er brands. Con'ress #as even #illin' to dele'ate the po#er to periodi%all& ad=ust the ex%ise tax rate and tax bra% ets as #ell as to periodi%all& resurve& and re%lassif& the %i'arette brands based on the in%rease in the %onsumer pri%e index to the 4*A and the 9IR. Thus" the provision #as the result of Con'ress1s earnest efforts to improve the effi%ien%& and effe%tivit& of the tax administration over sin produ%ts #hile tr&in' to balan%e the same #ith other >tate interests. On Uni) r#i!&5 5niformit& of taxation re-uires that all sub=e%ts or ob=e%ts of taxation" similarl& situated" are to be treated ali e both in privile'es and liabilities. In the instant %ase" there is no -uestion that the CAP meets the 'eo'raphi%al uniformit& re-uirement be%ause the assailed la# applies to AFF CIJAR?TT? 9RA)4> n the Philippines. On Ine9ui!abli!& an" Re'ressivi!&5 9AT %laims that the use of different tax bases for old brands as a'ainst ne# brands is dis%riminator& $ ine-uitable" and that the CAP is re'ressive in %hara%ter. This %annot be sustained be%ause the CAP meets the re-uirements of the ?PC. *n re'ressivit& .. the ex%ise tax imposed on %i'arettes is an indire%t tax" and thus" re'ressive in %hara%ter. D*0?@?R" this does not mean that the la# ma& be de%lared un%onstitutional be%ause the Constitution does not prohibit the imposition of indire%t taxes but merel& provides that Con'ress shall ?@*F@? pro'ressive s&stem of taxation. ;) The 9IR RR is invalid be%ause the )IRC does )*T authori8e the 9IR to update the tax %lassifi%ation of ne# brands ever& ; &ears or earlier. The po#er to re%lassif& %i'arette brands remains in Con'ress. Allo#in' the periodi% re%lassifi%ation of brands mi'ht tempt %i'arette manufa%turers to manipulate their brandsR pri%e levels or bribe the tax implementers to allo# their brands to be %lassified as a lo#er tax bra% et.

The& assert that the la; un"ul& "ele'a!es !$e p ;er ! )i% revenue !ar'e!s to the President as it la% s a suffi%ient standard on that matter. I/ :) 0$n li#i!in' !$e sc pe ) !$e s&s!e# ) re;ar"s an" incen!ives nl& ! ))icials an" e#pl &ees ) !$e -IR an" !$e -OC vi la!es !$e c ns!i!u!i nal 'uaran!ee ) e9ual pr !ec!i n ;) 4$e!$er r n ! !$e la; un"ul& "ele'a!es !$e p ;er ! )i% revenue !ar'e!s ! !$e Presi"en!. R/ )*" it does not violate ?PC and does )*T undul& dele'ate po#er to the President :) The e-ual prote%tion %lause re%o'ni8es a valid and reasonable %lassifi%ation. RA H335 has an expressed publi% poli%&" #$% is the optimi8ation of the revenue. 'eneration %apabilit& and %olle%tion of the 9IR and the 9*C. >in%e the sub=e%t of the la# is the revenue. 'eneration %apabilit& and %olle%tion of the 9IR and the 9*C" the in%entives and$or san%tions provided in the la# should lo'i%all& pertain to the said a'en%ies. >in%e the 9IR and 9*C perform the spe%ial fun%tion of taxation" su%h substantial distin%tion is 'ermane and intimatel& related to the purpose of the la#. Den%e" the %lassifi%ation and treatment a%%orded to the 9IR and the 9*C under RA H335 full& satisf& the demands of e-ual prote%tion. ;. T#o tests determine the validit& of dele'ation of le'islative po#er/ :) the %ompleteness test ;) the suffi%ient standard test A la# is %omplete #hen it sets forth therein the poli%& to be exe%uted and is suffi%ient #hen it provides ade-uate 'uidelines or limitations of the dele'ate1s authorit& RA H335 ade-uatel& states the poli%& and standards to 'uide the President in fixin' revenue tar'ets and the implementin' a'en%ies in %arr&in' out the provisions of the la#. Revenue tar'ets are based on the ori'inal estimated revenue %olle%tion expe%ted respe%tivel& of the 9IR and the 9*C for a 'iven fis%al &ear as approved b& the 4evelopment 9ud'et and Coordinatin' Committee (49CC) and submitted b& the President to Con'ress. Thus" the determination of revenue tar'ets does not rest solel& on the President as it also under'oes the s%rutin& of the 4evelopment 9oard Also" >e%tion B spe%ifies the limits of the 9oard1s authorit& and identifies the %onditions under #hi%h offi%ials and emplo&ees #hose revenue %olle%tion falls short of the tar'et b& at least B.53 ma& be removed from the servi%e. ,eralc v. Pr vince ) .a'una5 Dele'a!i n ! .GUs, I#pair#en! Clause Eeral%o #as 'ranted b& several muni%ipalities of the Provin%e of Fa'una a fran%hise to operate. RA B:L0 or the Fo%al Jov Code of :HH: #as then issued #$% allo#ed lo%al 'overnment units to %reate their o#n sour%es of revenue and to lev& taxes" fees and %har'es %onsistent #$ the basi% poli%& of autonom&. Purusant to this" the provin%e of Fa'una ena%ted an ordinan%e imposin' on businesses en=o&in' a fran%hise a fran%hise tax of 503 of :3 of 'ross annual re%eipts. Eeral%o paid under protest and sent a formal %laim for refund to the Provin%ial Treasurer %laimin' that the fran%hise tax it had paid to the )ational Jovernment (pursuant to P.4. 55:) alread& in%luded the fran%hise tax imposed b& the Provin%ial Tax *rdinan%e. Eeral%o also %ontended that Fa'una1s imposition of fran%hise tax %ontravened the provisions of P.4. 55: >e%tion : #hi%h provided that the fran%hise tax

A-AFADA v Purisi#a RA H335 (Attrition A%t of ;005) #as ena%ted to optimi8e the revenue.'eneration %apabilit& and %olle%tion of the 9IR and 9*C b& providin' a s&stem of re#ards and san%tions. This is done throu'h the %reation of a Re#ards and In%entives Aund (Aund) and a Revenue Performan%e ?valuation 9oard (9oard). It %overs all offi%ials and emplo&ees of the 9IR and the 9*C #ith at least six months of servi%e" re'ardless of emplo&ment status. The Aund is sour%ed from the %olle%tion of the 9IR and the 9*C in ex%ess of their revenue tar'ets for the &ear. An& in%entive or re#ard is ta en from the fund and allo%ated to the 9IR and the 9*C in proportion to their %ontributions. Petitioners in%ludin' A9AQA4A" invo in' their ri'ht as taxpa&ers" %hallen'ed the %onstitutionalit& of RA H335/ The& %laimed that limitin' the s%ope of the s&stem of re#ards and in%entives onl& to offi%ials and emplo&ees of the 9IR and the 9*C vi la!es !$e c ns!i!u!i nal 'uaran!ee ) e9ual pr !ec!i n . There is no reason #h& su%h s&stem should )*T appl& to *TD?R offi%ials and emplo&ees of all other 'overnment a'en%ies.

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pa&able b& all 'rantees of ele%tri% fran%hises shall be ;3 of their 'ross re%eipts re%eived from the sale of ele%tri% %urrent and from transa%tions in%ident to the 'eneration" distribution and sale of ele%tri% %urrent I/ 0$n the provin%e of Fa'una had the po#er to lev& the fran%hise tax R/ Ces. 5nder the present Constitution" #here there is neither a 'rant nor a prohibition b& statute" the tax po#er must be deemed to exist althou'h Con'ress ma& provide statutor& limitations and 'uidelines. The reason for this is to safe'uard the viabilit& and self.suffi%ien%& of lo%al 'overnment units b& dire%tl& 'rantin' them 'eneral and broad tax po#ers. The FJC of :HH: expli%itl& authori8es provin%ial 'overnments" not#ithstandin' an& exemption 'ranted b& la#" to impose a tax on businesses en=o&in' a fran%hise. 0hile the Court has referred to tax exemptions %ontained in spe%ial fran%hises as bein' in the nature of %ontra%ts and a part of the indu%ement for %arr&in' on the fran%hise" these exemptions" nevertheless" are far from bein' >TRICTFC C*)TRACT5AF. Do#ever" %ontra%tual tax exemptions should not be %onfused #$ tax exemptions under fran%hises. Contra%tual tax exemptions are those a'reed to b& the taxin' authorit& in %ontra%ts" su%h as those %ontained in 'overnment bonds" #here the 'overnment a%ts in its private %apa%it& and #aives its 'overnmental immunit&. Tax exemptions of this ind ma& )*T be revo ed #ithout impairin' the obli'ations of %ontra%ts. *n the other hand" a fran%hise parta es the nature of a 'rant #hi%h is be&ond the purvie# of the non.impairment %lause of the Constitution. Art :; of the Consti provides that no fran%hise for the operation of a publi% utilit& shall be 'ranted ex%ept under the %ondition that su%h privile'e shall be sub=e%t to amendment" alteration or repeal b& Con'ress as and #hen the %ommon 'ood so re-uires.

The fran%hise 'rantin' the exemption is a spe%ial la# appli%able onl& to C?PAFC*" #hile the Fo%al Tax Code is a 'eneral tax la#. The presumption is that spe%ial statutes are ex%eptions to the 'eneral la# be%ause the& pertain to a spe%ial %harter 'ranted to meet a parti%ular set of %onditions and %ir%umstan%es. Also" the Fo%al Tax Re'ulation 3.B5 issued b& the >e%retar& of Ainan%e made it %lear that the fran%hise tax imposed under lo%al tax ordinan%e pursuant to the Tax Code shall be %olle%ted from businesses holdin' fran%hise but )*T from business establishments #hose fran%hise %ontain the Zin.lieu.of.all.taxes.proviso1 Carcar 4lectric B .ce 9lant vs. C.3 the tax exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. )s a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation. 843)'C7 v 5era is not applicable in the present case because what the <overnment sought to impose on 8eralco in that case was not a franchise tax but a C78946&)T.6< T)C on the eDuipment it imported.

Pr vince ) ,isa#is Orien!al v. Ca'a&an Elec!ric P ;er an" .i'$! C #pan& JCEPA.COH C?PAFC* #as 'ranted a fran%hise to operate an ele%tri%" li'ht" heat" and po#er s&stem in Ca'a&an de *ro. The fran%hise imposed a 33 fran%hise tax #hi%h shall be in lieu of all taxes and assessments of #hatever authorit& upon the privile'es" earnin's" in%ome" et%" from #hi%h C?PAFC* #as expressl& exempted. >ubse-uentl& the Fo%al Tax Code #as promul'ated allo#in' provin%es to impose a tax of M of :3 on businesses en=o&in' fran%hises. Pursuant to this" the Provin%e of Eisamis *riental ena%ted an ordinan%e #hi%h also provided a fran%hise tax. C?PAFC* refused to pa& the additional tax" %laimin' the exemption 'ranted to it under its fran%hise.

)evertheless" be%ause of the opinion rendered b& the Provin%ial Ais%al" upholdin' the le'alit& of the Revenue *rdinan%e" C?PAFC* paid under protest. I/ 0$n C?PAFC* is exempt from pa&in' the provin%ial fran%hise tax R/ Ces. The fran%hise of C?PAFC* expressl& exempts it from pa&ment of all taxes of #hatever authorit&" ex%ept the 33 tax on its earnin'.

CEPA.CO v. CIR C?PAFC* #as 'ranted a le'islative fran%hise (RA 3;<B) to operate an ele%tri%" li'ht" heat" and po#er s&stem in Ca'a&an de *ro. The le'islative fran%hise imposed a 33 fran%hise tax #hi%h shall be in lieu of all taxes and assessments of #hatever authorit& upon the privile'es" earnin's" in%ome" et%" from #hi%h C?PAFC* #as expressl& ?G?EPT?4. *n Kune :HL2" RA 5<3: amended >e% ;< of the Tax Code b& ma in' liable for in%ome tax all %orporate taxpa&ers )*T exempt under the Tax Code.Thus" fran%hise %ompanies #ere sub=e%ted to in%ome tax in addition to fran%hise tax. Do#ever" in C?PAFC*Rs %ase" its fran%hise #as amended b& RA L0;0" effe%tive < Au'ust :HLH #$% reena%ted the tax exemption in its ori'inal %harter or neutrali8ed the modifi%ation made b& RA 5<3: more than a &ear before. 9& reason of the Tax Code amendment" the CIR sent a demand letter re-uirin' C?PAFC* to pa& defi%ien%& in%ome taxes for :HL2 to :HB:. The %ompan& %ontested the assessments. The CIR %an%elled the assessments for :HB0 and :HB: but insisted on those for :HL2 and :HLH. The %ompan& filed a petition for revie# #ith the Tax Court" #hi%h held the %ompan& liable onl& for the in%ome tax for the period from Kanuar& to Au'ust :HLH $ before the passa'e of RA L0;0 #hi%h reiterated its tax exemption. I/ 0$n C?PAFC* is exempt from pa&in' the provin%ial fran%hise tax. R/ Ces. The ar'ument that Con'ress %annot impair a le'islative fran%hise is untenable be%ause under the Constitution" a fran%hise is sub=e%t to amendment" alteration or repeal b& the Con'ress #hen the publi% interest so re-uires RA 5<3:" in amendin' the Tax Code b& sub=e%tin' to in%ome tax all %orporate taxpa&ers (not expressl& exempted)" had the effe%t of #ithdra#in' C?PAFC*Rs exemption from in%ome tax. D*0?@?R" the exemption #as restored b& the subse-uent ena%tment of RA L0;0 #$% reena%ted the said tax exemption. Thus" C?PAFC* is onl& liable for the in%ome tax for the period from Kanuar& : to Au'ust 3" :HLH #hen its tax exemption #as modified b& RA 5<3:.

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.t is relevant to note that franchise companies, like 9'2T have been paying income tax in addition to the franchise. )lso, the !EFE assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitionerGs income tax liability. .t had reason not to pay income tax because of the tax exemption in its franchise.

.eal"a Elec!ric C . v. CIR In :H:5" Kulian Anson #as 'ranted a fran%hise to operate an ele%tri% li'ht and po#er plant in Fe'aspi and 4ara'a Alba&. The fran%hise #as transferred to several parties until it #as finall& sold to Fealda ?le%tri% Co. Anson and his su%%essors.in.interest re'ularl& paid the ;3 fran%hise tax imposed on all fran%hises. In :H<L" the )IRC #as amended b& RA 3H" in%reasin' the fran%hise tax to 53. Fealda paid at first" but later filed a %laim for refund #$ the CIR %ontendin' that under its %harter" it #as liable to pa& onl& ;3 fran%hise tax. It ar'ues that the fran%hise #as a private %ontra%t bet#een its prede%essor.in. interest on one hand and the Jovernment" on the other" and as su%h" %annot be amended b& the Tax Code. 9e%ause of CIR1s ina%tion" it filed a petition #$ the CTA" #$% held Fealda liable for the 53 fran%hise tax I/ 0$n Fealda should pa& 53 fran%hise tax. R/ C?>P The rulin' in other %ases (@isa&an ?le%tri% and Eanila Railrod) to the effe%t that spe%ial la#s or %harters ma& not be amended" altered or repealed" ex%ept b& %onsent of all %on%erned %annot be inov ed be%ause/ :) Fealda1s %harter %ontains an express provision to the effe%t that the same ma& be altered or repealed b& Con'ress ;) the fran%hises involved in the %ases %ited differ substantiall& from Fealda1s fran%hise in that those of the @isa&an ?le%tri% and of the Eanila Railroad spe%ifi%all& provided that the fran%hise tax #hi%h the 'rantees #ere re-uired to pa& #as to be 6in lieu of all taxes of an& ind levied" established" or %olle%ted b& an& authorit& #hatsoever" no# or in the future7 FealdaRs %harter did )*T %ontain su%h provision. H.&T73: 3) IE amending the Tax Code became the basic franchise tax law by fixing the tax to be paid by holders of all existing and future franchises. Thus, the provisions of 3) IE should apply to 'ealda since its franchise was already existing at the time of the adoption of the amendment. Cassan vas v. H r"5 I#pair#en! Clause In :2HB" the >panish Jov 'ranted Cassanovas %ertain mines in Ambos Camarines. The Internal Revenue A%t imposes on all minin' %on%essions 'ranted prior to :2HH a propert& tax of P:00 ! an ad valorem tax of 33 of the a%tual mar et value of the output of the mines. The CIR thus %onsidered Cassanovas to fall under su%h. Cassanovas assailed the validit& of this provision on the 'round that it impairs the obli'ations of %ontra%ts. 5nder the de%ree of the >panish Jovernment" the minin' %laim #as sub=e%t onl& to P;0 propert& tax ! ad valorem tax of 33. The de%ree provided that no other taxes ex%ept those mentioned shall be imposed upon minin' industries.

I/ 0$n there #as a violation of the impairment %lause R/ Ces. Therefore" the provision is void. :) There #as a %ontra%t bet#een the >panish Jovernment and Cassanovas" the obli'ation of #hi%h %ontra%t #as impaired b& the Internal Revenue Fa#. A >tate ma& b& %ontra%t based on consideration exempt the propert& of an individual or %orporation from taxation either for a spe%ified period or permanentl&. And it is e-uall& #ell settled that the exemption is presumed to be on suffi%ient %onsideration" and binds the >tate if the %harter %ontainin' it is a%%epted. >u%h %ontra%t %an be enfor%ed a'ainst the >tate at the instan%e of the %orporation. ;) Also" the provision %onfli%ts #ith >e%tion L0 of the A%t of Con'ress of : Kul& :H0;" #hi%h indi%ate that %on%essions %an be %an%elled onl& b& reason of IFF?JAFITC in the pro%edure b& #hi%h the& #ere obtained" or for AAIF5R? to %ompl& #ith the %onditions pres%ribed. The 'rounds #ere not sho#n or %laimed in the %ase. The important distinction in this case is that there was consideration between both parties for entering into the contract. From the provisions of the deed, it was not a unilateral grant of a privilege by the &panish <overnment. Cassanovas undertook to perform some things with respect to the mining claim in consideration of the privilege. Hence, there was a binding contract with reciprocal obligations, which the &tate cannot abrogate .

A#erican -ible S cie!& v. Ci!& ) ,anila5 Free e%ercise ) Reli'i n The Ameri%an 9ible >o%iet& #as a missionar& so%iet& en'a'ed in the distribution and sale of bibles in the Philippines. The Cit& Treasurer of Eanila informed the >o%iet& that it #as %ondu%tin' the business of 'eneral mer%handisin' #ithout a Ea&or1s permit and muni%ipal li%ense" in violation of *rdinan%es 3000 and ;5;H. *rdinan%e 3000 re-uires one to obtain a Ea&or1s permit before en'a'in' in an& business" trade" or o%%upation" except those on which the city is not allowed to impose a license or tax. *rdinan%e ;5;H re-uires the -uarterl& pa&ment of li%ense fees based on 'ross sales from" amon' others" retail dealers in ne# mer%handise" su%h as those en'a'ed in the sale of boo s. The >o%iet& paid the fees in protest" %laimin' that it never re%eived an& profit from the sale of the materials. It then filed a %omplaint to de%lare the muni%ipal ordinan%es in -uestion un%onstitutional for violatin' the non.establishment and free exer%ise %lause of the Constitution. I/ 0$n the >o%iet& is re-uired to pa& the fees under the t#o ordinan%es. R/ )o" the >o%iet& is )*T re-uired to pa&. Reli'ious 'roups and the press are not free from all finan%ial burdens of 'overnment. The )IRC exempts asso%iations operatin' ex%lusivel& for reli'ious" %haritable" or edu%ational purposes from tax" PR*@I4?4 that in%ome from their PR*P?RTI?>" real or personal" *R an& a%tivit& %ondu%ted for profit shall be liable for tax.

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In this %ase" the a%t of sellin' bibles is purel& reli'ious and does not fall under the said provision. ?ven if the pri%e as ed for the bibles and other reli'ious pamphlets #as sometimes a little bit hi'her than their a%tual %ost" it %annot mean that the >o%iet& #as en'a'ed in the business or o%%upation of sellin' mer%handise for profit. Aor this reason" *rdinan%e ;5;H" #hi%h imposes a li%ense tax on the exer%ise of the ri'ht to sell reli'ious materials" %annot be applied to the >o%iet&" for in doin' so" it #ould impair its free exer%ise and en=o&ment of its reli'ious profession and #orship as #ell as its ri'hts of dissemination of reli'ious beliefs. *n the other hand" *rdinan%e 3000 re-uirin' a ma&or1s permit before a person %an en'a'e in a business" does )*T impose an& %har'e upon the en=o&ment of a ri'ht 'ranted b& the Constitution nor tax the exer%ise of reli'ious pra%ti%es. Thus" it is not appli%able to the >o%iet&" and %annot be %onsidered un%onstitutional even if applied to it. Thus" sin%e *rdinan%e ;5;H is not appli%able to the >o%iet&" the Cit& of Eanila is po#erless to li%ense or tax the business of the >o%iet&. Den%e" *rdinan%e 3000 is also inappli%able to the business of the >o%iet&.

%omplimentar& to the main or primar& purpose" the lease of the first floor to )orthern Ear etin' CA))*T be %onsidered in%idental to the purpose of edu%ation. >C affirmed CAI1s de%ision sub=e%t to the modifi%ation that half of the assessed tax be returned to Abra" 'iven that the 'round floor is bein' used for %ommer%ial purposes (leased) 95T the se%ond floor bein' used as in%idental to edu%ation (residen%e of the dire%tor).

Abra 1alle& C lle'e v. A9uin 5 E%e#p!i ns in )av r ) e"uca!i nal ins!i!u!i ns

Abra @alle& Colle'e #as an edu%ational %orporation and institution of hi'her learnin' dul& in%orporated #ith the >?C in :H<2. The premises of Abra @alle& #ere bein' used for the edu%ational purposes of the %olle'e (as %lassrooms of its hi'h s%hool and %olle'e students). In addition" its se%ond floor #as the permanent residen%e of the President and 4ire%tor of the Colle'e and his famil&. The 'round floor #as bein' rented to a %ommer%ial establishment" the )orthern Ear etin' Corporation. The Euni%ipal and Provin%ial treasurers issued a )oti%e of >ei8ure upon Abra @alle& to satisf& their taxes. The& then served a )oti%e of >ale" the sale bein' held on the same da&. 4r. Eillare" then muni%ipal ma&or" offered the hi'hest bid and a %ertifi%ate of sale #as issued to him. Abra filed a petition to annul the )oti%e of >ei8ure and )oti%e of >ale. CIA ruled in favor of CIR" sa&in' that the propert& #as )*T bein' used ex%lusivel& for edu%ation purposes I/ 0$n the propert& #as used ex%lusivel& for edu%ational purposes" thereb& exemptin' Abra @alle& Colle'e from pa&ment of tax. R/ )o. Abra @alle& Colle'e is not exempt be%ause the propert& #as also bein' used for %ommer%ial purposes. The test of exemption from taxation is the 5>? of the propert& for purposes mentioned in the Constitution. 0hile the Court allo#s a more liberal and non.restri%tive interpretation of the phrase 6ex%lusivel& used for edu%ational purposes"7 reasonable emphasis has al#a&s been made that exemption extends to fa%ilities #hi%h are inci"en!al ! and reas nabl& necessar& for the a%%omplishment of the main purposes. 0hile the use of the se%ond floor for residential purposes of the 4ire%tor and his famil& ma& find =ustifi%ation under the %on%ept of in%idental use" #hi%h is

CIR v -is$ p ) !$e ,issi nar& Dis!ric! ) !$e P$ilippines The 9ishop of the Eissionar& 4istri%t of the Phils in the 5>A is a %orporation sole re'istered #$ >?C and in %har'e of mana'in' estate properties in the Phils of the Eissionar& >o%iet&. *n the other hand" the Eissionar& 4istri%t is a dul& in%orporated and established reli'ious so%iet&. It o#ns and operates diff hospitals in the Phils namel& >t. Fu e1s" 9rent and >t. >tephen1s. *n different dates" the Eissionar& 4istri%t in the Philippines re%eived from the Eissionar& >o%iet& in the 5> various shipments of materials for the %onstru%tion and operation of the ne# >t. Fu e1s Dospital and the 9rent Dospital in >t. >tephen1s. The Eissionar& 4istri%t also re%eived from a %ertain 0illiam Einnis of Canada a stove for use of the 9rent Dospital. *n these shipments" the CIR levied and %olle%ted the total amount of P::2 ! as %ompensatin' tax. The 9ishop of the Eissionar& 4istri%t filed %laims for refund of the amount he had paid on the 'round that under RA :H:L" the materials re%eived b& him #ere exempt from the pa&ment of %ompensatin' tax. CIR denied the %laim for refund on the 'round that the shipments %annot be %onsidered donations be%ause the Eissionar& 4istri%t is merel& a bran%h of the Eissionar& >o%iet&" and are thus identi%al. It also alle'ed that >t. Fu eRs Dospital is not a %haritable institution and" therefore" is not exempt from taxation be%ause its admits pa& patients. The >e%retar& of Ainan%e states in his 4ept. *rder )o. :2 that hospitals admittin' pa& patients and %harit& patients are not %haritable institutions. CTA rendered a de%ision holdin' the shipments exempt from taxation orderin' CIR to refund to the 9ishop. I/ 0$n the 9ishop and Eissionar& 4istri%t are exempt from tax R/ C?>P The follo#in' re-uisites must %on%ur in order that a taxpa&er ma& %laim exemption under RA :H:L/ o :) the imported arti%les must have been donated o ;) the donee must be a dul& in%orporated $ established international %ivi% or'ani8ation" reli'ious or %haritable so%iet&" or institution for %ivi%" reli'ious or %haritable purposes

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3) the arti%les so imported must have been donated for the use of the or'ani8ation" so%iet& or institution or for free distribution and not for barter" sale or hire The 9ishop is admitted to be a %orporation sole dul& re'istered #ith >?C and the Eissionar& 4istri%t is a dul& in%orporated and established reli'ious so%iet&. The& are therefore entities separate and distin%t from the Eissionar& >o%iet& in the 5>A. The fa%t that the Eissionar& 4istri%t is a bran%h of the Eissionar& >o%iet& is of no moment be%ause it is a bran%h onl& in reli'ious matters" but in other respe%ts" it is independent (=ust li e the Phil Catholi% %hur%h to the universal Catholi% %hur%h). The materials and supplies #ere pur%hased b& the Eissionar& >o%iet& #ith mone& obtained from %ontributions from other people #ho should be %onsidered the real donors" affirmed b& the testimon& of Ee&er" Treasurer of the Eissionar& 4istri%t. Faslt&" the >e%retar& of Ainan%e CA))*T limit or other#ise -ualif& the en=o&ment of this exemption 'ranted under RA :H:L in implementin' the la#. Thus" the admission of pa& patients does not detra%t from the %haritable %hara%ter of a hospital" if" as in the %ase of >t. Fu e1s Dospital" its fund are devoted ex%lusivel& to the maintenan%e of the institution o

R/ C?>" there is a tax liabilit&" 95T Ar. Flado% is )*T personall& liable for the said 'ift tax. Instead" the Dead of the 4io%ese (9ishop of 9a%olod) should pa& the said 'ift tax. 6H Gi)! !a% is an e%cise !a%, n ! pr per!& !a%. E%cise !a% is NOT inclu"e" in !a% e%e#p!i n even i) e%clusivel& use" ) r reli'i us purp ses. In the present %ase" #hat the Colle%tor assessed #as a doneeRs 'ift tax, the assessment #as not on the properties themselves. It did not rest upon 'eneral o#nership, it #as an ex%ise upon the use made of the properties" upon the exer%ise of the privile'e of re%eivin' the properties. 0hen a 'ift tax is imposed on propert& used ex%lusivel& for reli'ious purposes" it 4*?> )*T %onstitute an impairment of the Constitution. The phrase Oexempt from taxation"O as emplo&ed in the Constitution should not be interpreted to mean exemption from all inds of taxes.There bein' no %lear" positive or express 'rant of su%h privile'e b& la#" in favor of petitioner" the exemption herein must be denied. @H Hea" ) Di cese is !$e real par!& in in!eres! . The 6Catholi% Parish Priest of @i%torias7 as the donee pertains to the Dead of the 4io%ese" therefore ma in' the latter the real part& in interest and thus validl& ma& substitute Ar. Flado% as part& in the %ase, and thus liable for the pa&ment of the ex%ise tax. Herrera v 0C - ar" ) Assess#en! Appeals The 4ire%tor of the 9ureau of Dospitals authori8ed Kose and ?ster Derrera to establish and operate the >t. Catherine1s Dospital. The Derreras sent a letter to the IC Assessor re-uestin' exemption from pa&ment of real estate tax on the hospital" statin' that the same #as established for %haritable and humanitarian purposes and not for %ommer%ial 'ain. The exemption #as 'ranted effe%tive &ears :H53 to :H55. In :H55" ho#ever" the Assessor re%lassified the properties from 6exempt7 to 6taxable7 effe%tive :H5L" as it #as as%ertained that out 3; beds in the hospital" :; of #hi%h are for pa&.patients. A s%hool of mid#ifer& is also operated #ithin the premises of the hospital. I/ 0$n >t. Catherine1s Dospital is exempt from realt& tax. R/ )*" it is not. 0here renderin' %harit& is its primar& ob=e%t" and the funds derived from pa&ments made b& patients able to pa& are devoted to the benevolent purposes of the institution" the mere fa%t that a profit has been made #ill not deprive the hospital of its benevolent %hara%ter The exemption in favor of propert& used ex%lusivel& for %haritable or edu%ational purpose ?GT?)4> to fa%ilities #hi%h are inci"en!al ! an" reas nabl& necessar& ) r !$e acc #plis$#en! ) sai" purp se " su%h as in the %ase of hospitals U a s%hool for trainin' nurses, a nurses1 home, propert& used to provide housin' fa%ilities for interns" resident do%tors" superintendents and other members of the hospital staff, and re%reational fa%ilities for student nurses" interns and residents. Thus" #ithin the purvie# of the Constitution" >t. Catherine1s Dospital is a %haritable institution exempt from taxation. -is$ p ) Nueva Se' via v Pr vincial - ar" ) Il c s N r!e The Roman Catholi% Apostoli% Chur%h" represented b& the 9ishop of )ueva >e'ovia" o#ned a par%el of land in the muni%ipalit& of >an )i%olas" Ilo%os )orte" all four sides of #hi%h fa%e on publi% streets.

.la" c v CIR E.9. ?state of 9a%olod Cit&" donated P:0 to Ar. Crispin Rui8" then parish priest of @i%torias" )e'ros *%%idental" for the %onstru%tion of a ne# Catholi% Chur%h in the lo%alit&. The total amount #as a%tuall& spent for the purpose intended. The follo#in' &ear" Ar. Rui8 #as subsitituted b& Ar. Flado%. >ubse-uentl&" the donor E.9. ?state" In%. filed the donorRs 'ift tax return. CIR then issued an assessment for doneeRs 'ift tax a'ainst the Catholi% Parish of @i%torias" of #hi%h Ar. Flado% #as alread& the priest. The tax amounted to P:"3B0 in%ludin' sur%har'es plus interests of :3 monthl&" and the %ompromise for the late filin' of the return. Ar. Flado% protested to the assessment and re-uested the #ithdra#al of su%h" but this #as denied b& the CIR" so he appealed to the CTA. De %ontested that/ o at the time of the donation" he #as not the parish priest in @i%torias and it #as his prede%essor" Ar. Rui8" that should be liable o there is =uridi%al person no#n as the OCatholi% Parish Priest of @i%torias"O and" therefore" he should not be liable for the doneeRs 'ift tax and the head of the 4io%ese should be liable instead o the assessment of the 'ift tax" even a'ainst the Roman Catholi% Chur%h" #ould not be valid" for su%h #ould be a %lear violation of Art @I >e% ;; of the Constitution #hi%h exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. CTA affirmed the de%ision of the CIR ex%ept #ith re'ard to the imposition of the %ompromise penalt& in the amount of P;0 Ar. Flado% appealed to the >C" and the >C issued a resolution orderin' parties to sho# %ause #h& the Dead of the 4io%ese should or should not be substituted in lieu of Flado%. I/ 0$n Ar Flado% should be liable for the assessed doneeRs 'ift tax on the P:0 for the %onstru%tion of the @i%torias Parish

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*n the south side is a part of the %hur%h&ard" the %onvent and an ad=a%ent lot used for a ve'etable 'arden" in #hi%h there is a stable and a #ell for the use of the %onvent. In the %enter is the remainder of the %hur%h&ard and the %hur%h. *n the north side is an old %emeter& #ith ; of its #alls still standin'" and a portion #here formerl& stood a to#er" the base of #hi%h ma& still be seen. As re-uired b& the provin%ial board" the Chur%h paid under protest" the land tax on the lot ad=oinin' the %onvent and the lot #hi%h formerl& #as the %emeter& #ith the portion #here the to#er stood. The 9ishop filed an a%tion for the re%over& of the sum paid b& #a& of land tax" alle'in' that the %olle%tion of this tax is ille'al. The lo#er %ourt de%lared that the tax %olle%ted on the lot" #hi%h formerl& #as the %emeter& and on the portion #here the to#er stood" #as ille'al. 9oth parties appealed from this =ud'ment. I/ 0$n the par%els of land are exempt from tax R/ C?>" the lots are exempt from land tax and the Provin%e of Ilo%os )orte should refund the amounts paid. The exemption in favor of the %onvent in the pa&ment of the land tax (Administrative Code) refers to the home of the parties #ho presides over the %hur%h and #ho has to ta e %are of himself in order to dis%har'e his duties. It therefore must" in the sense" in%lude not onl& the land a%tuall& o%%upied b& the %hur%h" but also the ad=a%ent 'round destined to the ordinar& in%idental uses of man. ?x%ept in lar'e %ities #here the densit& of the population and the development of %ommer%e re-uire the use of lar'er tra%ts of land for buildin's" a ve'etable 'arden belon's to a house and" in the %ase of a %onvent" it use is limited to the ne%essities of the priest" #hi%h %omes under the exemption. Fand used as a lod'in' house b& the people #ho parti%ipate in reli'ious festivities" #hi%h %onstitutes an in%idental use in reli'ious fun%tions" not for %ommer%ial purposes" %omes #ithin the exemption. Thus" the lot #hi%h formerl& #as the %emeter&" #hile it is no lon'er used as su%h" %onstitutes an in%idental use in reli'ious fun%tions" #hi%h also %omes #ithin the exemption. >C reversed the appealed =ud'ment in all its parts and held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff #hatever #as paid as su%h tax" #ithout an& spe%ial pronoun%ement as to %osts.

I/ 0$n the in%ome derived from rentals of real propert& o#ned b& CECA (established as Oa #elfare" edu%ational and %haritable non.profit %orporationO) is sub=e%t to in%ome tax under the )IRC and Constitution R/ C?>" the in%ome derived b& CECA from rentals of its real propert& is sub=e%t to in%ome tax. Under the NIRC: 0hile >e%tion ;B of the )IRC provides that non.profit or'ani8ations and %lubs shall not be taxed on their in%ome" it also provides that this exemption #ill )*T appl& to in%ome derived from :) properties" real or personal" and ;) an& other a%tivities %ondu%ted for profit shall be sub=e%t to tax (amended b& P4 :<5B). Appl&in' the do%trine of stri%t interpretation of tax exemptions" the phrase Oan& of their a%tivities %ondu%ted for profit7 does )*T -ualif& the #ord 6properties.7 This ma es in%ome from the propert& of the or'ani8ation taxable" re'ardless of ho# that in%ome is used .. #hether for profit or for loft& non.profit purposes. Under the Constitution: Arti%le @I" >e%tion ;2 of the Constitution exempts 6%haritable institutions7 from the pa&ment not onl& of taxes. D*0?@?R" a%d' to %onsti framers" the exemption does )*T pertain to in%ome tax but onl& propert& taxes. Aor the CECA to be 'ranted the exemption as an 6edu%ational institution7 under the Consti (Art :< >e% <)" it must prove #ith substantial eviden%e that/ a. it falls under the %lassifi%ation non.sto% " non.profit edu%ational institution, and b. the in%ome it see s to be exempted from taxation is used a%tuall&" dire%tl&" and ex%lusivel& for edu%ational purposes Do#ever" no eviden%e #as submitted b& CECA to prove that the& met the re-uisites. The term 6edu%ational institution7 or 6institution of learnin'7 has a%-uired a #ell. no#n te%hni%al meanin'" of #hi%h the members of the Constitutional Commission are deemed %o'ni8ant. 5nder the ?du%ation A%t of :H2;" su%h term refers to s%hools" #hi%h is s&non&mous #ith formal edu%ation *R a s%hool seminar&" %olle'e" or edu%ational establishment. The Court" upon examinin' the 6Amended Arti%les of In%orporation7 and 69&.Fa#s7 of the CECA" but found nothin' in them that even hints that it is a s%hool or an edu%ational institution. ?ven if CECA is an edu%ational institution" the Court also notes that CECA did not submit proof of the proportionate amount of the sub=e%t in%ome that #as a%tuall&" dire%tl& and ex%lusivel& used for edu%ational purposes.

CIR v CA an" C,CA CECA is a non.sto% " non.profit institution" #hi%h %ondu%ts various pro'rams and a%tivities that are benefi%ial to the publi%" espe%iall& the &oun' people" pursuant to its reli'ious" edu%ational and %haritable ob=e%tives. In :H20" CECA" amon' others" an amount of in%ome (about PB00 !) from leasin' out a portion of its premises to small shop o#ners" li e restaurants and %anteen operators" and from par in' fees %olle%ted from non.members. The CIR thus issued an assessment to CECA totalin' about P<:5 ! in%ludin' sur%har'e and interest" for defi%ien%& in%ome tax" defi%ien%& expanded #ithholdin' taxes on rentals and professional fees and defi%ien%& #ithholdin' tax on #a'es. CECA protested the assessment and filed a letter. In repl&" the CIR denied the %laims of CECA. CECA thus filed a petition to the CTA to ta e out the taxes and CTA ruled in favor of CECA. CIR filed a petition #ith the CA to reverse" but CA affirmed CTARs de%ision.

NOTE Jif &ir asks about how this differs with 7TH43 cases" The cases relied on by :8C) do not support its cause. :8C) of 8anila v. C.3 and )bra 5alley College, .nc. v. )Duino are not applicable, because the controversy in both cases involved exemption from the payment of property tax, not income tax. Hospital de &an /uan de 2ios, .nc. v. 9asay City is not in point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of 9asay City ## an issue not at all related to that involved in a claimed exemption from the payment if income taxes imposed on property leases. .n /esus &acred Heart College v. Com. 7f .nternal 3evenue, the party therein, which claimed an exemption from the payment of income tax, was an educational institution which submitted substantial evidence that the income sub,ect of the controversy had been devoted or used solely for educational purposes. 7n the other hand, :8C) in the present case had not given any proof that it is

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an educational institution, or that of its rent income is actually, directly and exclusively used for educational purposes.

.un' Cen!er ) !$e P$ils v 0C The Fun' Center of the Philippines" a non.sto% and non.profit entit& established b& virtue of P4 :2;3" #as the o#ner of a par%el of land in IC. In the middle of the lot #as a hospital no#n as the Fun' Center of the Philippines.

A bi' spa%e at the 'round floor #as bein' leased to private parties" for %anteen and small store spa%es" and to medi%al pra%titioners #ho use the same as their private %lini%s for their patients #hom the& %har'e for their professional servi%es. Almost M of the entire area on the left side of the buildin' alon' I Ave #as va%ant and idle" #hile a bi' portion on the ri'ht side" at the %orner of I Ave and ?llipti%al Road" #as bein' leased for %ommer%ial purposes to a private enterprise no#n as the ?llipti%al *r%hids and Jarden Center. The Fun' Center a%%epts pa&in' and non.pa&in' patients. It also renders medi%al servi%es to out.patients" both pa&in' and non.pa&in'. Aside from its in%ome from pa&in' patients" it also re%eived 'ov subsidies. The Cit& Assessor of IC assessed both the land and the hospital buildin' for real propert& taxes amountin' to about P<E. Fun' Center filed a Claim for exemption from real propert& taxes sa&in' it #as a %haritable institution. The Fun' Center1s re-uest #as denied" and a petition #as" thereafter" filed before the Fo%al 9oard of Assessment Appeals of Iue8on Cit& (IC.F9AA) for the reversal of the resolution of the Cit& Assessor. The Fun' Center alle'ed that under >e%tion ;2" para'raph 3 of the :H2B Constitution" the propert& is exempt from real propert& taxes. It averred that a minimum of L03 of its hospital beds are ex%lusivel& used for %harit& patients and that the ma=or thrust of its hospital operation is to serve %harit& patients. Do#ever" the Fo%al 9oard held Fun' Center liable for real propert& taxes. 4e%ision #as affirmed b& IC Central 9oard. Petition #as elevated to >C. I/ :)0$n Fun' Center is a %haritable institution #ithin the %ontext of P4 :2;3 and under the Consti . C?> ;) 0$n the real properties of the Fun' Center are exempt from real propert& taxes. )* R/ :) CES, !$e .un' Cen!er is a c$ari!able ins!i!u!i n. To determine #hether an enterprise is a %haritable institution" the elements #hi%h should be %onsidered in%lude the statute %reatin' it" its purpose" b&.la#s" servi%es and nature$ use of properties. 5nder P4 :2;3" the Fun' Center is a non.profit and non.sto% %orporation #hi%h" sub=e%t to the provisions of the de%ree" is to be administered b& the *ffi%e of the President of the Philippines #ith the Einistr& of Dealth and the Einistr& of Duman >ettlements. It #as or'ani8ed for the #elfare and benefit of the Ailipino people prin%ipall& to help %ombat the hi'h in%iden%e of lun' and pulmonar& diseases in the Philippines. The Arti%les of In%orporation of FC provide that its medi%al servi%es are to be rendered to the publi% in 'eneral in an& and all #al s of life in%ludin' those #ho are poor and the need& #ithout dis%rimination. A %haritable institution does not lose its %hara%ter as su%h and its exemption from taxes simpl& be%ause it derives in%ome from pa&in' patients" #hether out.patient" or %onfined in the hospital" or re%eives subsidies from the 'overnment" so lon' as the mone& re%eived is used for the CDARITA9F? ob=e%tive it is intended for" and no mone& inures to the private benefit of the persons mana'in' or operatin' the institution. In this %ase" the mone& re%eived b& the Fun' Center be%omes a part of the trust fund and must be devoted to publi% trust purposes and %annot be diverted to private profit or benefit.

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5nder P4 :2;3" the Fun' Center is entitled to re%eive donations. The Fun' Center does not lose its %hara%ter as a %haritable institution simpl& be%ause of 'ov subsidies (donation). ;) NO, n ! all are e%e#p! )r # real pr per!& !a%. The portions of its real propert& that are leased to private entities are not exempt from real propert& taxes as these are not a%tuall&" dire%tl& and ex%lusivel& used for %haritable purposes. >in%e taxation is the rule and exemption is the ex%eption" a %laim for exemption from tax pa&ments must be %learl& sho#n and based on lan'ua'e in the la# too plain to be mista en. 5nder P4 :2;3" the Fun' Center does )*T en=o& an& propert& tax exemption privile'es for its real properties and buildin's. If the intentions #ere other#ise" the same should have been amon' the enumeration of tax exempt privile'es under >e%tion ; thereof. 5nder the :HB3 and :H2B Constitutions and RA B:L0 in order to be entitled to the exemption of propert& tax" the Fun' Center should prove that a) it is a %haritable institution, and (b) its real properties are ACT5AFFC" 4IR?CTFC and ?GCF5>I@?FC used for %haritable purposes. o If real propert& is used for one or more %ommer%ial purposes" it is not ex%lusivel& used for the exempted purposes but is sub=e%t to taxation. TD5>" 6ex%lusivel&7 means >*F?FC. o 0hat is meant b& a%tual" dire%t and ex%lusive use of the propert& for %haritable purposes is the 4IR?CT" IEE?4IAT?" ACT5AF appli%ation of the PR*P?RTC itself to the purposes for #hi%h the %haritable institution is or'ani8ed. It is )*T the use of I)C*E? of the propert& #$% is the %ontrollin' fa%tor (to exempt). In this %ase" #hile portions of the hospital are used for the treatment of patients" other parts are bein' leased to private individuals for their %lini%s and a %anteen. Aurther" a portion of the land is bein' leased to a private individual for her business enterprise under the business name O?llipti%al *r%hids and Jarden Center.O Thus" portions of the land leased to private entities and individuals are )*T tax exempt" #hile those used for patients" pa&in' and non.pa&in'" are exempt.

SITUS OF TAXATION AND DOU-.E TAXATION Republic -an/ v CTA In :HB:" Republi% 9an #as assessed the amount of about P:.3E! as :3 monthl& ban reserve defi%ien%& tax for the &ear :HLH. In :HB3" R9 #as assessed the amount of about P:.HE! as :3 monthl& ban reserve defi%ien%& tax for the &ear :HB0. *n both o%%asions" R9 re-uested re%onsideration of the assessment #hi%h the CIR denied. R9 %ontended that >e%tion ;<H of the Tax Code is no lon'er enfor%eable" be%ause >e%tion :;L of A%t :<5H $ the Corporation Fa#" #hi%h #as alle'edl& the basis for the imposition of the :3 reserve defi%ien%& tax" #as repealed b& >e%tion H0 of Republi% A%t 33B" the Jeneral 9an in' A%t" and b& >e%tions :00 and :0: of Republi% A%t ;L5.

Sec. @A= ) !$e Ta% C "e provides that ban s #ill be %har'ed :3 a month on the amount of reserve defi%ien%ies in%urred. Sec. 6@7 ) !$e C rp ra!i n .a; provides that 6Reserve defi%ien%ies shall be penali8ed at the rate of :3 per month upon the amount of the defi%ien%ies and for the periods of their duration in a%%ordan%e #ith the re'ulation to Pbe issued b& the 9an Commissioner.7 A%%ordin' to petitioner" >e%tion :;L has been expressl& repealed b& Sec!i n =B ) !$e General -an/in' Ac! #hi%h provides that se%tion :03.:<L and :B:.:H0 of the Corp Fa# are repealed. CTA" ho#ever" upheld the validit& of the assessed taxes. I/ 0$n >e%. ;<H of the Tax Code #as repealed R/ )*" >e% ;<H is >TIFF enfor%eable. Both petitioner and respondent agree that the reDuirement on the maintenance of bank reserves, previously found in &ection !$F of )ct !KLE JThe Corporation 'aw", remained prescribed based on &ec. $F of 3) IIM, the <eneral Banking )ct, and &ections !AA, !A!, and !AF of 3). $FL, the Central Bank )ct, all providing for the reserve reDuirements on banking operations. R9 ar'ues that in %ase of a reserve defi%ien%&" the violatin' ban #ould be liable at the same time for a tax of :3 a month pa&able to 9IR (under >e% ;<H" Tax Code)" PF5> a penalt& of :$:0 of :3 a da& pa&able to C9 (>e%tion :0L" Central 9an A%t). It posits that >e% ;<H imposes not a tax but a P?)AFTC (sin%e it states that 6reserve defi%ien%ies shall be penali*e" at the rate of one per %entum per monthV7) Do#ever" the la# %learl& intended for it to be %har'ed as a tax for it falls under the headin' TIT.E 1III33,ISCE..ANEOUS TAXES. As the la# stood durin' the &ears that R9 #as assessed for taxes on reserve defi%ien%ies (:HLH W :HB0)" R9 had to pa& t#i%e/ o a penalt& to the Central 9an b& virtue of >e%tion :0L for violation of >e%s. :00 and :0:" all of the Central 9an A%t and o tax to the 9IR for in%urrin' a reserve defi%ien%&. Thus" it is %lear from the statutes then in for%e that there #as no double taxation involved. *ne #as a P?)AFTC and the other #as a TAG. At an& rate" the >C has upheld the validit& of double taxation. The pa&ment of :$:0 of :3 for in%urrin' reserve defi%ien%ies (>e%tion :0L" Central 9an A%t) is a penalt& as the primar& purpose involved is re'ulation" #hile the pa&ment of :3 for the same violation (>e%ond Para'raph">e%tion ;<H" )IRC) is a tax for the 'eneration of revenue #hi%h is the primar& purpose in this instan%e. R9 should not %omplain that it is bein' as ed to pa& t#i%e for in%urrin' reserve defi%ien%ies. It %an al#a&s avoid this predi%ament b& not havin' reserve defi%ien%ies. R91s %ase is %overed b& t#o spe%ial la#s.one a ban in' la# and the other" a tax la#.

AR*E PA*/ theyGre saying kasi that &4C !$F was repealed na. but then the basis kasi for &4C !$F can be found in other laws. like the <4643)' B)6N.6< )CT. in that law it penali(es bank reserve deficiencies. parang theyGre saying theyGre being penali(ed TW.C4. one by the law and the other by the B.3. but the one by the law is a T)C kasi its under nga the heading 8.&C4'')647=& T)C4&. so hindi sya pwede double taxation kasi ! is a tax and the other is a penalty lang. Pr c! r K Ga#ble v ,unicipali!& ) <a'na

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The Euni%ipal Coun%il of Ka'na" 9ohol" ena%ted Euni%ipal *rdinan%e < #$% imposed >T*RAJ? A??> on all exportable %opra deposited in the bode'a #$in the =urisdi%tion of Ka'na" 9ohol at the rate of 6B cen!s PER 6BB /il s. It also provides that all e%p r!able c pra deposited in the bode'a #ithin the Euni%ipalit& of Ka'na 9ohol" is part of the surveillan%e and loo out of the Euni%ipal Authorities. In this li'ht" PWJ" a domesti% %orp en'a'ed in the manufa%ture of oil" soap and others" #$% maintained a bode'a in the muni%ipalit& #here it stored C*PRA (pur%hased from the muni%ipalit& and shipped for its manufa%turin' ops)" paid stora'e fees for L &rs from :H52 to :HL3. The fees totalled P:E!. PWJ then filed a suit in the CAI of Eanila" pra&in'/ o to de%lare *rdinan%e 5 I)APPFICA9F? Tto it or" that it be pronoun%ed ultra#vires and void for bein' be&ond the po#er of the Euni%ipalit& to ena%t and o that defendant Euni%ipalit& be ordered to refund to it the amount of P<; ! #hi%h it paid under protest, and %osts PWJ ar'ues that the tax imposed in the said ordinan%e is an 6?GP*RT TAG7 on ?GP*RTA9F? C*PRA and thus" the said lev& #as inappli%able to their business be%ause the& are store %opra for their ?GCF5>I@? 5>? in %onne%tion #$ the manufa%ture of soap" edible oil" mar'arine and other similar produ%ts" for purposes of profit $ revenue. TC ruled in favour of the Euni%ipalit&" sa&in' it had the po#er to ena%t the *rdinan%e under the Revised Admin Code (se% ;;32)" other#ise no#n as the Jeneral 0elfare Clause. It also de%lared PWJ1s ri'ht of a%tion had pres%ribed under the 5.&ear period provided for b& Arti%le ::<H of the Civil Code. Thus" this dire%t appeal. I/ :) 0$n E* < is ultra vires and void. )*" it is @AFI4P ;) 0$n PWJ is entitled for the reimbursement of ex%ess amount paid..)*P R/ *rdinan%e )o. < is valid as a muni%ipalit& is authori8ed to impose 3 inds of li%enses" pursuant to the broad authorit& %onferred upon muni%ipalities b& Common#ealth A%t )o. <B;/ a li%ense for re'ulation of useful o%%upation or enterprises, li%ense for restri%tion or re'ulation of non.useful o%%upations or enterprises, and li%ense for revenue It is thus unne%essar& to determine #hether the sub=e%t stora'e fee is a tax for revenue purposes or a li%ense fee to reimburse defendant Euni%ipalit& for servi%e of supervision be%ause defendant Euni%ipalit& is authori8ed not onl& to impose a li%ense fee but also to tax for revenue purposes. It has been held that a #arehouse used for eepin' or storin' %opra is an establishment li el& to en"an'er !$e public sa)e!& r li/el& ! 'ive rise ! c n)la'ra!i n because !$e il c n!en! ) !$e c pra ;$en i'ni!e" is "i))icul! ! pu! un"er c n!r l b& ;a!er an" !$e use ) c$e#icals is necessar& ! pu! u! !$e )ire. And as the *rdinan%e itself states" all exportable %opra deposited #ithin the muni%ipalit& is Opart of the surveillan%e and loo out of muni%ipal authorities. 9B<Gs argument that the imposition of 9A.!A per !AA kilos of copra stored in a bodega within defendantGs territory is beyond the cost of regulation and surveillance is not well taken. )s enunciated in the case of 5ictorias 8illing Co.

vs. 8unicipality of 5ictorias, supra. 8unicipal corporations are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures. .n the case at bar, appellant has not sufficiently shown that the rate imposed by the Duestioned 7rdinance is oppressive, excessive and prohibitive. 0hen the *rdinan%e itself spea s of OexportableO %opra" the meanin' %onve&ed is )*Tex%lusivel& export to a forei'n %ountr& but shipment out of the muni%ipalit&. T$e s! ra'e )ee i#pu'ne" is n ! a !a% n e%p r! because i! is i#p se" n ! nl& up n c pra ! be e%p r!e" bu! als up n c pra SO.D AND USED ) r DO,ESTIC PURPOSES i) s! re" in an& ;are$ use in !$e ,unicipali!& an" !$e ;ei'$! !$ere ) is 6BB /il s r # re. 4ouble taxation has also been defined as taxin' the same person t#i%e b& the same =urisdi%tion for the same thin'. In this %ase" a tax on PWJRs produ%ts is different from a tax on the privile'e of storin' %opra in a bode'a situated #ithin the territorial boundar& of defendant muni%ipalit&. Do#ever" lo#er %ourt erred in rulin' that a%tion had pres%ribed. In 8unicipality of 7pon vs. Caltex 9hil/ the period for pres%ription of a%tions to re%over muni%ipal li%ense taxes is L &ears under Arti%le ::<5(;) of the Civil Code. Thus" PWJRs a%tion brou'ht #ithin six &ears from the time the ri'ht of a%tion first a%%rued in :H52 has not &et pres%ribed.

Pepsi3C la v ,unicipali!& ) Tanauan This %ase involved ; Euni%ipal *rdinan%es and the Fo%al Autonom& A%t (RA ;;L<)/ o The Fo%al Autonom& A%t (RA ;;L<) 'rants muni%ipalities the authorit& to impose muni%ipal taxes or fees upon persons en'a'ed in an& o%%upation or business #ithin their =urisdi%tions" provided that the& #ere not allo#ed to impose per%enta'e tax on sales and on items alread& sub=e%t to spe%ifi% tax under the )IRC o Euni%ipal *rdinan%e )o. ;3 of Tanauan" Fe&te imposes on soft drin produ%ers and manufa%turers a tax of 6+67 ) a cen!av ) r ever& b !!le ) s )! "rin/ c r/e". o Euni%ipal *rdinan%e )o. ;B imposes on soft drin s produ%ed or manufa%tured a tax of 6 cen!av n eac$ 'all n ) v lu#e capaci!&. Pepsi filed an a%tion to de%lare the Fo%al Autonom& A%t and the t#o ordinan%es void. It %laimed that the E*s %onstituted double taxation" be%ause the& %over the same sub=e%t matter and impose pra%ti%all& the same tax rate. I/ 0$n the E*s %onstitute double taxation R/ )*. 4ouble taxation" in 'eneral" is not forbidden b& our fundamental la#" sin%e #e have not adopted as part of the in=un%tion a'ainst double taxation found in the Constitution of the 5nited >tates and some states of the 5nion. 4ouble taxation be%omes obnoxious onl& #here the taxpa&er is taxed T0IC? for the benefit of the >AE? 'overnmental entit& $ b& the >AE? =ursid%tion for the >AE? purpose" but not in a %ase #here one tax is imposed b& the >tate and the other b& the %it&$muni%ipalit&. In this %ase" petitioner is #ron' in assertin' that E* ;3 and ;B %onstitute double taxation on its assumption that both ordinan%es are valid and le'all& enfor%eable. E* ;3 levies or %olle%ts from soft drin s produ%ers or manufa%turers :$:L of a %entavo for ever& bottle %or ed" irrespe%tive of the volume %ontents of the bottle used.

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0hen it #as dis%overed that the produ%er or manufa%turer %ould in%rease the volume %ontents of the bottle and still pa& the same tax rate" the Euni%ipalit& of Tanauan ena%ted E* ;B" approved on *%tober ;2" :HL;" imposin' a tax of : %entavo on ea%h JAFF*) of @*F5E? %apa%it&. The differen%e bet#een the t#o ordinan%es %learl& lies in the tax rate of the soft drin s produ%ed. The intention of the Euni%ipal Coun%il of Tanauan in ena%tin' E* ;B is thus %lear/ it #as intended as a plain substitute for the prior E* ;3" and operates as a repeal of the latter" even #ithout #ords to that effe%t.

I1illanueva v Ci!& ) Il il The muni%ipal board of Iloilo ena%ted *R4I)A)C? :: (series of :H20) imposin' 2L li%ense tax fees on persons en'a'ed in the business of operatin' tenement houses ((tenement house ( an& buildin' or d#ellin' for rentin' spa%e divided into separate apartments or a%%essories).

The @illanuevas" o#ners of < tenement houses %ontainin' 3< apartments" %hallen'ed the validit& of su%h ordinan%e be%ause onl& the taxpa&ers of the Cit& of Iloilo are sin'led out to pa& taxes on their tenement houses" #hile %iti8ens of other %ities" #here their %oun%ils do not ena%t a similar tax ordinan%e are permitted to es%ape su%h imposition. Fo#er %ourt rendered the ordinan%e ille'al as it %onstitutes double taxation I/ 0$n ordinan%e amounts to double taxation R/ )*P The petitionersR %ontention that the& are doubl& taxed be%ause the& are pa&in' the real estate taxes and the tenement tax imposed b& the ordinan%e in -uestion is devoid of merit. A li%ense tax ma& be levied upon a business or o%%upation althou'h the land or propert& used in %onne%tion there#ith is sub=e%t to propert& tax. This #ould not %onstitute double taxation be%ause there is onl& double taxation #hen the >AE? PR*P?RTC $ >59?CT EATT?R is taxed t#i%e for the same purpose" #$in the same =urisdi%tion and period" and of the same ind of %hara%ter of tax. Real estate and tenement tax are )*T of the same ind $ %hara%ter. At all events" there is no %onstitutional prohibition a'ainst double taxation in the Philippines. It is somethin' not favored" but is permissible" provided some other %onstitutional re-uirement is not thereb& violated" su%h as the re-uirement that taxes must be uniform.

cH c ns!i!u!es " uble !a%a!i n d" the national government has preempted the field of taxation with respect to sugar centrals or refineries The lo#er %ourt held that the exa%tion #as invalid be%ause the muni%ipalit& CA))*T impose a tax for revenue in the 'uise of a poli%e measure. The amounts set forth in the ordinan%e also ex%eeded the %ost of li%ensin'" re'ulatin'" and surveillan%e. I/ 0$n the ordinan%e #as valid. R/ The ordinan%e #as valid. There is no double taxation be%ause the %ompan& is bein' taxed for the same ob=e%t/ *ne tax is on su'ar %entrals and the other is on su'ar refineries. It =ust so happens that the %ompan& is both. Also" the tax #as imposed based on %apa%it& of the su'ar %entrals to produ%e" so it #as reall& a li%ense on the o%%upation or business of su'ar %entrals and su'ar refineries and not on the su'ar itself, hen%e there #as no identit& of ob=e%t of taxation There is no dis%rimination despite the fa%t that the %ompan& is the onl& su'ar produ%in' entit& in the muni%ipalit&. @i%torias Eillin' is not named in the ordinan%e and should another %orporation de%ide to produ%e su'ar in the area" it #ill be taxed a%%ordin'l&. JR/ If not for poli%e inspe%tion" supervision" re'ulation + it is a revenue measureP o o

I1ic! rias ,illin' v ,unicipali!& ) 1ic! rias The muni%ipal %oun%il of @i%torias ena%ted *rdinan%e : #$% re-uired su'ar %entrals operatin' #$in the muni%ipalit& to pa& an annual muni%ipal li%ense tax. 9ased on the ordinan%e" @i%torias Eillin' #as assessed <0Q (imposed on su'ar %entrals) and another <0Q (imposed on su'ar refineries). Thus" @i%torias Eillin' filed a suit to de%lare the ordinan%e void sin%e it/ o a) ex%eeds the amount fixed in Provin%ial Cir%ular :;.A issued b& the Ainan%e 4ept o b) is dis%riminator&" as it sin'les out @E" #$% is the onl& operator of a su'ar %entral and a su'ar refiner& #ithin the =urisdi%tion of defendant muni%ipalit&

IC #pania General "e Tabac s v Ci!& ) ,anila Taba%alera paid for its li-uor li%ense and also paid sales tax on its sale of 'eneral mer%handise" in%ludin' li-uor. It %laimed that it made an overpa&ment and demanded a refund of the sales tax paid on the 'round that sin%e it alread& paid the li%ense fees" it #as no lon'er bound to pa& the sales tax on the li-uor. I/ 0$n Taba%alera is liable for sales tax on the li-uor despite alread& havin' paid for its li-uor li%ense. R/ C?>" Taba%alera is liable. Jenerall&" the term 6tax7 applies to all inds of exa%tions #hi%h be%ome publi% funds. Fe'all&" ho#ever" a li%ense fee is a le'al %on%ept -uite distin%t from tax. o Taxes are for raisin' revenues #hile li%ense fees are imposed in the exer%ise of poli%e po#er for purposes of re'ulation. 5nder on ordinan%e" Taba%alera must pa& li%ense fees in order to %ontinue en=o&in' the privile'e of sellin' li-uor" %onsiderin' that the sale of intoxi%atin' li-uor is potentiall& harmful to publi% health and morals" and must be sub=e%t to >tate re'ulation. 5nder another ordinan%e" Taba%alera is liable for sales tax on sales of 'eneral mer%handise" in%ludin' li-uor. 9oth a li%ense fee and a tax ma& be imposed on the same business or o%%upation" or for sellin' the same arti%le" #ithout it bein' in violation of the rule a'ainst double taxation.

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 Pr vince ) -ulacan v CA The >an''unian' Panlala#i'an of 9ula%an passed a provin%ial ordinan%e #hi%h provided for the imposition of a :03 tax on the fair mar et value in the lo%alit& per %ubi% meter of ordinar& stones" sand" 'rave" earth and other -uarr& resour%es" extra%ted from publi% lands or other publi% #aters #ithin its territorial =urisdi%tion. Thus the provini%ial treasurer of 9ula%an assessed Republi% Cement Corporation for taxes from several par%els of private land in the provin%e. Republi% paid under protest" %laimin' that the imposition of su%h tax is be&ond the po#er of the taxin' authorit& of 9ula%an. The %ase #as eventuall& elevated to CA and CA ruled that the Provin%e of 9ula%an had )* authorit& to impose the tax I5 0$n the Provin%e of 9ula%an has the authorit& to impose su%h tax. R5 )o" the& do not have the authorit&. Petitioners %ontend that their authorit& %omes from >e%tion :2L of the FJC #$% provides that the provin%e ma& lev& taxes and fees not more than :03 of the fair mar et value per %ubi% meter of ordinar& stones" sand" 'ravel et%" extra%ted from publi% lands. Do#ever" a perusal of the said la# sho#s that the tax imposed is an ex%ise tax bein' a tax upon the performan%e" %arr&in' on" or exer%ise of an a%tivit& and the FJC provides that %ities" muni%ipalities" and baran'a&s shall )*T extend to ex%ise taxes enumerated under the )IRC. The )IRC levies a tax on all -uarr& resour%es" re'ardless of ori'in" #hether extra%ted from publi% or private land. Thus" a provin%e ma& not ordinaril& impose taxes on stones" sand" 'ravel" earth and other -uarr& resour%es" as the same are alread& taxed under the )IRC. D*0?@?R" the provin%e %an impose a tax on stones" sand" 'ravel" earth and other -uarr& resour%es extra%ted from publi% land be%ause it is expressl& empo#ered to do so under the Fo%al Jovernment Code. As to the -uarr& resour%es extra%ted from PRI@AT? FA)4" it ma& not do so due to the limitations in the FJC (se% :33) in relation to the )IRC (>e% :5:). Ainall& the petitioners %annot invo e the Re'alian 4o%trine to extend the %overa'e to -uarr& resour%es be%ause taxes" bein' burdens are )*T presumed be&ond #hat the appli%able statute expressl& and %learl& de%lares. Tax statutes are %onstrued strictissimi ,uris a'ainst the 'overnment. FOR,S OF ESCAPE FRO, TAXATION Delp$er Tra"es C rp v IAC Pa%he%o and his sister o#ned a par%el of real estate land identified that #as re'istered in 9ula%an. The& then leased the land to Constru%tion Components In%" and providin' that durin' the existen%e or after the term of the lease" the lessor (Pa%he%o"sister) should he de%ide to sell the propert& leased" shall first offer the same to the lessee(Constru%tion) and the lessee has the priorit& to bu& under similar %onditions.

Constru%tion then assi'ned its ri'hts and obli'ations to D&dro Pipes #$ the %onsent of the Pa%he%os. A deed of ex%han'e #as exe%uted bet#een the Pa%he%os and 4elpher Trades #here Pa%he%os %onve&ed to 4elpher the leased propert& to'ether #$ another par%el of land also lo%ated in Ealinta ?state" @alen8uela for ;"500 shares of sto% of 4elpher #$ a total value of P:.5E. *n the 'round that it #as not 'iven the first option to bu& the leased propert& pursuant to the proviso in the lease a'reement" D&dro Pipes filed an amended %omplaint for re%onve&an%e of the sub=e%t lot in its favor under %onditions similar to those #here 4elpher a%-uired the propert& from the Pa%he%o1s. The CAI of 9ula%an ruled in favor of D&dro Pipes #ho had the preferential ri'ht to a%-uire the propert& (ri'ht of first refusal)" and Pa%he%o #as ordered to immediatel& %onve& the propert& to D&dro Pipes. The IAC affirmed this de%ision. 4elpher ar'ued that the 6deed of ex%han'e7 exe%uted bet#een Pa%he%o and 4elpher #as )*T a %ontra%t of sale" so it did not pre=udi%e the ri'ht of first refusal in the %ontra%t bet#een Pa%he%o and D&dro Pipes I/ 0$n the deed of ex%han'e #as a %ontra%t of sale R/ 0$n there #as a violation of the ri'ht of first refusal entitled to D&dro Pipes R/ )*" the deed of ex%han'e #as )*T a %ontra%t of sale, thus" there #as no violation of the ri'ht of first refusal The O4eed of ?x%han'eO of propert& bet#een the Pa%he%os and 4elpher Trades Corporation %annot be %onsidered a %ontra%t of sale be%ause there #as no transfer of a%tual o#nership interests b& the Pa%he%os to a third part&. The Pa%he%o famil& merel& %han'ed their o#nership from one form to another. The o#nership remained in the same hands. Den%e" D&dro Pipes has no basis for its %laim of a li'ht of first refusal under the lease %ontra%t. In order to perpetuate their %ontrol over the propert& throu'h the %orporation and to avoid taxes" the t#o pie%es of real estate #$% had been leased to D&dro Pipes" #ere transferred to the %orporation b& virtue of a deed of ex%han'e of propert&. In ex%han'e for these properties" Pela'ia and 4elfin a%-uired ;"500 unissued no par value shares of sto% #hi%h are e-uivalent to a 553 ma=orit& in the %orporation be%ause the other o#ners onl& o#ned ;"000 shares, the& refer to this s%heme as Oestate plannin'.O In effe%t" the 4elpher Trades Corporation is a business %onduit or alter e'o of the Pa%he%os. 0hat the& reall& did #as to invest their properties and %han'e the nature of their o#nership from unin%orporated to in%orporated form b& or'ani8in' 4elpher Trades Corporation to ta e %ontrol of their properties and at the same time save on inheritan%e taxes. Its other advanta'es are %ontinuous %ontrol of the propert&" tax exemption benefits" and other inherent benefits in a %orporation. A no.par value share does not purport to represent an& stated proportionate interest in the %apital sto% measured b& value" but onl& an ali-uot part of the #hole number of su%h shares of the issuin' %orporation. The holder of no.par shares ma& see from the %ertifi%ate itself that he is onl& an ali-uot sharer in the assets of the %orporation. Thus" b& removin' the par value of shares" the attention of persons interested in the finan%ial %ondition of a %orporation is fo%used upon the value of assets and the amount of its debts.

Hen' T n' Te%!iles v CIR

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Textiles from abroad #ere #ithdra#n from Customs b& Pan.Asiati% Commer%ial" #hi%h paid" in the name of Hen' T n' Te%!iles" the %orrespondin' advan%e sales tax under >e% :23 of the Internal Revenue Code. CIR then assessed a'ainst Den' Ton' Textiles defi%ien%& sales taxes and sur%har'es from :H<H.:H50 in the sum of P2H for the importation of textiles from abroad. This #as on the 'round that Den' Ton' #as the R?AF IEP*RT?R of 'oods and did not pa& taxes due on the basis of 'ross sellin' pri%es. Den Ton' appealed the assessment to the 9oard of Appeals" and the %ase #as transferred to the CTA upon its or'ani8ation in :H5<. I/ :) 0$n the Den Ton' #as the importer of the 'oods, ;) 0$n it #as 'uilt& of fraud to #arrant the imposition of a penalt& of 503 defi%ien%& R/ C?> DT #as the importer but there #as )* fraud to #arrant imposition of penalt& >C affirmed CTA findin's that Den' Ton' #as the importer of the 'oods based on eviden%e/ o DT and Pan.Asiati% #ere sister %orporations. o Commer%ial do%s %overin' the importations (shippin' do%s" insuran%e papers" et%.) #ere all in the name of DT o In %onne%tion #$ advan%e sales tax" Pan.Asiati% #rote a letter to DT providin' a brea do#n of the 53 sales tax to'ether #$ offi%ial re%eipt numbers and other details o There is both do%umentar& and testimonial eviden%e (#itness de%larations) to sho# that PA a%ted merel& as I)4?)T*R. DT pla%ed throu'h PA orders for importations of textiles from the 5>. )lthough HT avers that the importation papers were placed in HTOs name only to accommodate and introduce HT to textile suppliers abroad and that it was in no position to make the importations due to its small 9IAk capital, these circumstances only show a 93.5)T4 )33)6<4846T between HT and 9). .t did not affect the role of HT as importer. >C per%eived it the entire set.up as an ARRA)J?E?)T throu'h #$% sales tax %ould be EI)IEIT?4 b& havin' PA as indorser #ithdra# 'oods from Customs upon pa&ment of advan%e sales tax then sell it to Den Ton' at %ost $ ne'li'ible profit. The 'oods #ere made to appear as havin' been sold so that no sales tax #as paid b& DT upon the sale of 'oods" nor #as an& sales tax paid on the supposed sales b& PA. (The sales tax on sales of imported arti%les #as based on JR*>> >?FFI)J pri%e) D*0?@?R" the arran'ement itself does not =ustif& the penalt& imposed b& CTA. >e% :23 of the Internal Revenue Code spea s of #illful ne'le%t to file the return $ #ilful ma in' of a false $ fraudulent return. An a!!e#p! ! #ini#i*e ne8s !a% " es n ! necessaril& c ns!i!u!e )rau". A !a%pa&er #a& "i#inis$ $is liabili!& b& an& #eans ;+c !$e la; per#i!s. Intention to minimi8e taxes in the %ontext of fraud must thus be proven b& CF?AR A)4 C*)@I)CI)J ?@I4?)C?. There #as no sho#in' of su%h in this %ase so penalt& imposed b& CTA is modified" eliminatin' the 503 penalt& on defi%ien%& sales tax.

CIR v T "a CIC authori8ed 9eni'no Toda" Kr." President and o#ner of HH.HH:3 of its issued and outstandin' %apital sto% " to sell the Cibeles 9uildin' and the t#o

par%els of land on #hi%h the buildin' stands for an amount of not less than PH0E. Toda purportedl& sold the propert& for P:00 million to Rafael Altona'a" #ho" in turn" sold the same propert& on the same da& to Ro&al Eat%h for P;00E. Aor the sale of the propert& to Ro&al Eat%h (REI)" Altona'a paid %apital 'ains tax in the amount of P:0E. CIC then filed its %orporate annual in%ome tax return for the &ear :H2H" de%larin'" amon' other thin's" its 'ain from the sale of real propert& in the amount of about PB5 !. After %reditin' #ithholdin' taxes of P;5< !" it paid P;L ! for its net taxable in%ome of PB5 ! Toda sold his entire shares of sto% s in CIC to Choa for P:;.5E. Three and a half &ears later" Toda died. >ubse-uentl&" the 9IR sent an assessment noti%e and demand letter to the CIC for defi%ien%& in%ome tax for the &ear :H2H in the amount of about PBH !. The ne# CIC as ed for a re%onsideration" assertin' that the assessment should be dire%ted a'ainst the old CIC" and not a'ainst the ne# CIC" #hi%h is o#ned b& an entirel& different set of sto% holders, moreover" Toda had underta en to hold the bu&er of his sto% holdin's and the CIC free from all tax liabilities for the fis%al &ears :H2B.:H2H. The ?state of Toda re%eived a )oti%e of Assessment from the CIR for defi%ien%& in%ome tax for the &ear :H2H in the amount of PBH !. The ?state thereafter filed a protest" #hi%h the CIR dismissed. The estate filed a Petition for Revie# before the CTA alle'in'" amon' others" that the CIR erred in holdin' the estate liable for in%ome tax defi%ien%&. Doldin' that CTA ruled in favour of the ?state. I/0$n CTA erred in holdin' that Toda %ommitted no fraud #ith intent to evade the tax on the sale of the properties of Cibelles Insuran%e Corporation R/ C?>" CTA erred. Toda %ommitted fraud so his ?state should pa& the PBH ! defi%ien%& in%ome tax for :H2H" plus le'al interest until the amount is full& paid. Tax avoidan%e and tax evasion are the t#o most %ommon #a&s used b& taxpa&ers in es%apin' from taxation/ Ta% av i"ance is the tax savin' devi%e #ithin the means san%tioned b& la#. This method should be used b& the taxpa&er in 'ood faith and at arms len'th. Ta% evasi n" on the other hand" is a s%heme used outside of those la#ful means and #hen availed of" it usuall& sub=e%ts the taxpa&er to further or additional %ivil or %riminal liabilities. It %onnotes the inte'ration of three fa%tors/ ?95P o :) end to be a%hieved (pa&ment of [ taxes) o ;) bad faith $ evil state of mind o 3) unla#ful %ourse of a%tion $ failure of a%tion All these fa%tors are present in the instant %ase. Prior to the purported sale of the Cibeles propert& b& CIC to Altona'a" CIC re%eived P<0E from from REI" and )*T Altona'a. The P<0E #as debited b& REI and refle%ted in its trial balan%e as Oother inv. ( Cibeles 9ld'.O Another <0E #as debited and refle%ted in REI1s trial balan%e as Oother inv. ( Cibeles 9ld'.O This sho#s that the real bu&er of the properties #as REI" and )*T Altona'a.

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The ?state admitted that the sale #as made to Toda as part of the tax plannin' s%heme of CIC. The s%heme resorted to b& CIC in ma in' it appear that there #ere t#o sales of the sub=e%t properties" i.e." from CIC to Altona'a" and then from Altona'a to REI %annot be %onsidered a le'itimate tax plannin'. >u%h s%heme is tainted #ith fraud. Araud pertains to a%ts and omissions for purposes of de%eption" brea%h of trust or ta in' advanta'e is ta en of another. In this %ase" it is obvious that the ob=e%tive of the sale to Altona'a #as to redu%e the amount of tax to be paid espe%iall& that the transfer from him to REI #ould then sub=e%t the in%ome to onl& 53 individual %apital 'ains tax" and )*T the 353 %orporate in%ome tax. Altona'a1s sole purpose of a%-uirin' and transferrin' title of the sub=e%t properties on the same da& #as to %reate a tax shelter. Altona'a never %ontrolled the propert& and did not en=o& the normal benefits and burdens of o#nership. The sale to him #as merel& a tax plo&" a sham" and #ithout business purpose and e%onomi% substan%e. To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to )ltonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by C.C to 38..

EXE,PTION FRO, TAXATION Dava Gul) .u#ber v CIR 4avao Julf is a li%ensed forest %on%essionaire possessin' a Timber Fi%ense A'reement 'ranted b& the Einistr& of )atural Resour%es (no# 4?)R). Aor about ; &rs" it pur%hased from various oil %ompanies mineral oil and diesel fuel #$% it used ex%lusivel& for the exploitation and operation of its forest %on%ession. The oil %ompanies paid the spe%ifi% taxes imposed under Secs6L: an" 6L7 ) !$e NIRC on the sale of its produ%ts. >in%e the taxes #ere in%luded in the pur%hase pri%e" the& #ere eventuall& passed on to the user .. 4avao Julf in this %ase. 4J then filed before the CIR a %laim for refund in the amount of about P:;0 !" #$% represented ;53 of the spe%ifi% taxes a%tuall& paid on the said fules and oils. This #as based on the %ase of Insular .u#ber v. CTA and SecL, RA6A:L #$% provided that #hen oils are used b& miners$forest %on%essionaires" ;53 #ill be refunded b& the CIR upon submission of proof of a%tual use. (pro%eeds of the tax #ill a%%rue to road and brid'e funds) 4J bein' able to %ompl& #$ the said pro%edure" filed #$ the CTA a petition for revie#. CTA found that 4J #as entitled to a partial refund of spe%ifi% taxes in the redu%ed amt of about P; !" sin%e its %laim on pur%hases of lubri%atin' oil and manufa%tured oils other than lubri%atin' oil had PR?>CRI9?4. In other #ords" CTA 'ranted the %laim" but %omputed the refund based on rates deemed paid under RA :<35" and )*T on the hi'her rates a%tuall& paid under the )IRC. 4J elevated the %ase to the CA" insistin' that the basis for %omputin' the refund should be the in%reased rates in the )IRC and )*T under RA :<35.

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CA ruled that the %laim for refund should indeed be %omputed on the basis of the amounts deemed paid under >e%s : and ; of RA :<35" and that the %laims for refund #$% pres%ribed and those not filed in the admin level must be ex%luded. I/ 0$n 4J is entitled under RA :<35 to the refund of ;53 of the amt of spe%ifi% taxes it a%tuall& paid on mineral oils $ oil produ%ts taxed under the )IRC (refund based on in%reasedd rates) R/ )*. 4J is onl& entitled to a partial refund. :) 4J is entitled to partial refund under >e%5" RA :<35" #hi%h #as ena%ted to provide means for in%reasin' the Di'h#a& >pe%ial Aund. The spe%ifi% taxes %olle%ted on 'asoline and fuel a%%rue to the Aund" #hi%h is to be used for the %onstru%tion and maintenan%e of the hi'h#a& s&stem. 9ut be%ause the 'asoline and fuel pur%hased b& minin' and lumber %on%essionaires are used #ithin their *0) %ompounds and roads" the& do )*T dire%tl& benefit the fund and its use. Thus" the tax refund for su%h %on%essionares is but proper. ;) D*0?@?R" sin%e the partial refund authori8ed under >e%tion 5" RA :<35" is in the nature of a tax exemption" it must be %onstrued stri%tl& a'ainst the 'rantee. RA :<35 and the subse-uent pertinent statutes" after s%rutin&" sho# no expression of a le'islative #ill authori8in' a refund based on the hi'her rates %laimed b& 4J. The mere fa%t that the privile'e of refund #as in%luded in >e%tion 5" and not in >e%tion :" is insuffi%ient to support 4J1s %laim. 0hen the la# itself does not expli%itl& provide that a refund under RA :<35 ma& be based on hi'her rates #hi%h #ere nonexistent at the time of its ena%tment" this Court %annot presume other#ise. A le'islative la%una %annot be filled b& =udi%ial fiat. 4J then asserts that 6e-uit& and =usti%e demand that the %omputation of the tax refunds be based on a%tual amounts paid under >e%tions :53 and :5L of the )IRC.7 D*0?@?R" there is no tax exemption solel& on the 'round of e-uit&.

P$il Ace!&lene v CIR Philippine A%et&lene Co. In% (PAC). is a %orporation en'a'ed in the manufa%ture and sale of ox&'en and a%et&lene 'ases. Arom :H53 to :H52" it made various sales of its produ%ts to the )AP*C*R" a Phil 'ov a'en%&" and the @*IC? *A AE?RICA" a 5> 'ov a'en%&. The CIR assessed defi%ien%& sales tax and sur%har'e on the sales" #$% amounted to about P:; !" pursuant to the )IRC. The %ompan& denied liabilit& for the pa&ment of the tax on the 'round that both )AP*C*R and the @*A are exempt from taxation. It as ed for a re%onsideration of the assessment and" failin' to se%ure one" appealed to the CTA. The CTA ruled that the tax on the sale of arti%les or 'oods in se%tion :2L of the Code is a tax on the EA)5AACT5R?R and )*T the 95C?R. PAC" bein' a manufa%turer" CA))*T %laim exemption from the pa&ment of sales tax simpl& be%ause its bu&er" )apo%or" is exempt. 0ith respe%t to the sales made to the @*A" CTA held that 'oods pur%hased b& the Ameri%an Jovernment or its a'en%ies from manufa%turers or produ%ers are exempt from the pa&ment of the sales tax under the a'reement bet#een the Jovernment of the Philippines and that of the 5nited >tates" provided the pur%hases are supported b& %ertifi%ates of exemption. I/ 0$n PAC should be exempt from sales tax R/ )*. PAC should pa& P:; ! defi%ien%& tax.

>tatutes #hi%h impose a tax on sales" have been des%ribed as 6a%ts #ith s%hi8ophreni% s&mptoms"7 as the& apparentl& have t#o fa%es U one that of a vendor tax" the other" a vendee tax. D*0?@?R" this is %larified b& the )IRC 0$% provides that the sales tax 6shall be paid b& the EA)5AACT5R?R or produ%er"7 #ho must 6ma e a true and %omplete return of the amount of his" her or its 'ross monthl& sales" re%eipts or earnin's or 'ross value of output a%tuall& removed from the fa%tor& or mill #arehouse and #ithin &ec !PF, 6.3C provides that a tax ? to MQ of the gross selling price shall be levied on articles sold, to be paid by the manufacturer or producer. &ec !PI further provides that it persons conducting businesses should pay the percentage tax, because otherwise, the amount of the tax shall be increased by $LQ, the increment to be a part of the tax. 0hen the e%onomi% burden of the tax finall& falls on the pur%haser" the tax be%omes a part of the pri%e #hi%h the pur%haser must pa&. It does not matter that an additional amount is billed as tax to the pur%haser. The method of listin' the pri%e and the tax separatel& and definin' taxable 'ross re%eipts as the amount re%eived less the amount of the tax added" merel& avoids pa&ment b& the seller of a tax on the amount of the tax. The effe%t is still the same" namel&" that the pur%haser does )*T pa& the tax. De pa&s or ma& pa& the seller more for the 'oods be%ause of the seller1s obli'ation" but that is all and the amount added be%ause of the tax is paid to 'et the 'oods and for nothin' else. 9ut the tax burden ma& not even be shifted to the pur%haser at all. A de%ision to absorb the burden of the tax is lar'el& a matter of e%onomi%s. Then it %an no lon'er be %ontended that a sales tax is a tax on the pur%haser. The tax imposed b& se%tion :2L of the )IRC is a tax on the manufa%turer or produ%er and )*T a tax on the pur%haser ex%ept probabl& in a ver& remote and in%onse-uential sense. A%%ordin'l& its lev& on the sales made to tax.exempt entities li e the )PC is permissible. The a'reement bet#een RP and the 5> %on%ernin' militar& bases provides tax exemption for 'oods that #ill be used ?GCF5>I@?FC in the %onstru%tion" maintenan%e" operation and defense of bases. TD5>" onl& >AF?> to the -uartermaster are exempt from taxation. Den%e" the %ir%ular of the 9ureau of Internal Revenue #$% 'ives the tax exemptions in the A'reement an expansive %onstru%tion it is void. The sales to the @*A are sub=e%t to the pa&ment of per%enta'e taxes under se%tion :2L of the Code. D*0?@?R" the )apo%or en=o&s tax exemption b& virtue of an a%t of Con'ress" in order to fa%ilitate indebtedness.

CIR v CA an" A!ene "e ,anila Ateneo de Eanila 5niversit&" is a non.sto% " non.profit edu%ational institution" #as %ondu%tin' resear%h throu'h an auxiliar& unit" the Institute of Philippine Culture. In :H23" Ateneo re%eived from CIR a demand letter assessin' Ateneo of the the sum of about P:B0 ! for alle'ed defi%ien%& %ontra%tor1s tax" and an assessment in the sum of about P:E! for alle'ed defi%ien%& in%ome tax for the fis%al &ear of Ear%h :HB2. 4en&in' said tax liabilities" Ateneo sent CIR a letter.protest %ontestin' the validit& of the assessments.

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CIR rendered a letter.de%ision %an%elin' the assessment for defi%ien%& in%ome tax but modified the assessment for defi%ien%& %ontra%tor1s tax b& in%reasin' the amount due to P:H0 !. Ateneo re-uested for a re%onsideration or reinvesti'ation of the modified assessment. At the same time" it filed in the CTA a petition for revie# of the said letter.de%ision. 0hile the petition #as pendin' before the CTA" CIR issued a final de%ision redu%in' the assessment for defi%ien%& %ontra%tor1s tax from P:H0 ! to P<L !" ex%lusive of sur%har'e and interest. CTA %an%eled the defi%ien%& %ontra%tor1s tax assessment" #$% #as affirmed b& the CA. CIR filed a petition for revie# before the >C. I/ 0$n Ateneo should pa& the 33 %ontra%tor1s tax under >e% ;05 of the Tax Code R/ )*. :) In %ase of doubt" statutes on tax imposition are to be %onstrued stron'l& a'ainst the J*@ and in favor of %iti8ens" be%ause burdens are )*T to be imposed nor presumed be&ond #hat is expressed. Ateneo1s IPC )?@?R sold its servi%es for a fee to an&one or #as ever en'a'ed in a business apart from and independentl& of the a%ademi% purposes of the universit&. Aunds re%eived b& Ateneo are te%hni%all& not a fee. The& ma& ho#ever fall as 'ifts or donations #hi%h are 6tax.exempt7 as sho#n b& Ateneo1s %omplian%e #$ the )IRC re-uirement providin' for the exemption of su%h 'ifts to an edu%ational institution. ;) The term Zindependent %ontra%tors1 in%lude persons #hose a%tivit& %onsists essentiall& of the sale of all inds of servi%es for a fee. The term Rgross receiptsO means all amounts received by the prime or principal contractor as the total contract price, undiminished by amount paid to the subcontractor, shall be excluded from the taxable gross receipts of the subcontractor. Ateneo1s IPC %annot be deemed either as a %ontra%t of sale or a %ontra%t for a pie%e of #or . 9& the %ontra%t of sale" one of the %ontra%tin' parties obli'ates himself to transfer the o#nership of and to deliver a determinate thin'" and the other to pa& therefor a pri%e %ertain in mone& or its e-uivalent. In the %ase of a %ontra%t for a pie%e of #or " the %ontra%tor binds himself to exe%ute a pie%e of #or for the emplo&er" in %onsideration of a %ertain pri%e or %ompensation. D*0?@?R" it is %lear in from the eviden%e on re%ord that there #as no sale either of ob=e%ts or servi%es be%ause there #as no transfer of o#nership over the resear%h data obtained or the results of resear%h pro=e%ts underta en b& the IPC. TO SU,/ Ateneo is )*T a %ontra%tor sellin' its servi%es for a fee but an a%ademi% institution %ondu%tin' these resear%hes pursuant to its %ommitments to edu%ation and" ultimatel&" to publi% servi%e. ?du%ation is and )*T profit is the motive for underta in' the resear%h pro=e%ts.

Cal!e% v C ##issi n n Au"i! J!$is " esn8! c ver all !$e issues, pls rea" !$e "i'es! 'en #a"e+!$e ri'inal i) & u ;anna be super sureH The *il Pri%e >tabili8ation Aund (*P>A) #as %reated b& P4:H52" amended b& ?* :3B" for the purpose of minimi8in' fre-uent pri%e %han'es brou'ht about b& ex%han'e rate ad=ustments and$or %han'es in #orld mar et pri%es of %rude oil and imported petroleum produ%ts. It #as to be sour%ed from tax %olle%tions. C*A sent a letter to Caltex" dire%tin' it to remit its %olle%tion to the *P>A" ex%ludin' that unremitted for :H2L and :H22 of the additional tax on petroleum produ%ts authori8ed under >e%tion 2 of P4 :H5L, and that pendin' su%h remittan%e" all its %laims for reimbursement from the *P>A shall be held in abe&an%e. Caltex re-uested C*A for an earl& release of its reimbursement %ertifi%ates from the *P>A. It invo ed in support of su%h C*A Cir%ular )o. 2H.;HH on the liftin' of pre.audit of 'overnment transa%tions of national 'overnment a'en%ies and J*CCs. Do#ever" C*A denied this" and repeated its earlier dire%tive to Caltex to for#ard pa&ment of its unremitted %olle%tions to the *P>A. Caltex ten submitted a proposal to C*A for the pa&ment and the re%over& of %laims. C*A approved the proposal but prohibited Caltex from further offsetin' remittan%es and reimbursements for the %urrent and ensuin' &ears. Caltex moved for re%onsideration. I/:) 0$n Caltex %an %laim for reimbursement of under re%over& arisin' from sales to )AP*C*R .C?> :) 0$n Caltex %ould be reimbursed on its sales to ATFA> and EARC*PP?R.)* ;) 0$n the amounts due from Caltex to the *P>A ma& be offsetted a'ainst Caltex1 outstandin' %laims from said funds.)* R/ )*. :) The C*A admits in their Comment that under re%over& arisin' from sales to )PC are reimbursable be%ause )PC #as 'ranted full exemption from the pa&ment of taxes, to prove this" C*A tra%es the la#s providin' for su%h exemption. The last la# %ited is the Ais%al In%entives Re'ulator& 9oardRs Resolution )o. :B. 2B of ;< Kune :H2B #hi%h provides" in part" Othat the tax and dut& exemption privile'es of the )ational Po#er Corporation" in%ludin' those pertainin' to its domesti% pur%hases of petroleum and petroleum produ%ts . . . are restored effe%tive Ear%h :0" :H2B.O In a Eemorandum issued on 5 *%tober :H2B b& the *ffi%e of the President" )PCRs tax exemption #as %onfirmed and approved. Den%e" Caltex %an re%over its %laim arisin' from sales of petroleum produ%ts to the )ational Po#er Corporation. ;) 0ith respe%t to its %laim for reimbursement on sales to ATFA> and EARC*PP?R" Caltex relies on Fetter of Instru%tion (F*I) :<:L #$% ordered the suspension of pa&ments of all taxes" duties" fees and other %har'es" #hether dire%t or indire%t" due and pa&able b& the %opper minin' %ompanies in distress to the national 'overnment. Pursuant to this F*I" Einister of ?ner'& @elas%o issued a Eemorandum Cir%ular #$% advised oil %ompanies that ATFA> and EARC*PP?R minin' %orps are amon' those de%lared to be in distress. C*A denied su%h %laim based on the fa%t that Caltex has no authorit& to %laim reimbursement for the un%olle%ted impost be%ause F*I.:<:L #as issued #hen

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the *P>A #as not &et existin' and %ould not have %ontemplated *P>A imposts at the time of its formulation. The F*I #as also never published in the *ffi%ial Ja8ette so it has no for%e and effe%t. The >C said that even 'rantin' arguendo that the F*I has for%e and effe%t" Caltex1s %laim must still fail. Tax exemptions as a 'eneral rule are %onstrued stri%tl& a'ainst the 'rantee and liberall& in favor of the taxin' authorit&. The burden of proof rests upon the part& %laimin' exemption to prove that it is in fa%t %overed b& the exemption so %laimed. The part& %laimin' exemption must therefore be expressl& mentioned in the exemptin' la# or at least be #ithin its purvie# b& %lear le'islative intent. In this %ase" CAFT?G failed to prove that it is entitled" as a %onse-uen%e of its sales to ATFA> and EARC*PP?R" to %laim reimbursement from the *P>A under F*I :<:L. Thou'h F*I :<:L ma& suspend the pa&ment of taxes b& %opper minin' %ompanies" it does not 'ive petitioner the same privile'e #ith respe%t to the pa&ment of *P>A 3) Taxation is no lon'er envisioned as a measure merel& to raise revenue to support the existen%e of 'overnment, taxes ma& be levied #ith a re'ulator& purpose to provide means for the rehabilitation and stabili8ation of a threatened industr& #hi%h is affe%ted #ith publi% interest as to be #ithin the poli%e po#er of the state. P4 :H5L" as amended b& ?* :3B" expli%itl& provides that the sour%e of *P>A is taxation. A taxpa&er ma& not offset taxes due from the %laims that he ma& have a'ainst the 'overnment. Taxes %annot be the sub=e%t of %ompensation be%ause the 'overnment and taxpa&er are not mutuall& %reditors and debtors of ea%h other and a %laim for taxes is not su%h a debt" demand" %ontra%t or =ud'ment as is allo#ed to be set. off.

.u* n S!eve" rin' v CTA Fu8on >tevedorin' Corp." in :HL: and :HL;" imported various en'ine parts and other e-uipment for the repair and maintenan%e of its tu'boats for #hi%h it paid the assessed %ompensatin' tax under protest. 5nable to se%ure a tax refund from the CIR" it filed a Petition for Revie# #ith the CTA" pra&in' to be 'ranted a refund of about P33 !. The CTA ho#ever denied the %laims for refund due to la% of suffi%ient le'al =ustifi%ation. F> filed a Eotion for Re%onsideration" but the same #as denied. F> %ontends that Otu'boatsO are embra%ed and in%luded in the term O%ar'o vesselO under the tax exemption provisions of >e%tion :H0 of the Revenue Code" as amended b& RA 3:BL. F> ar'ues that in le'al %ontemplation" the tu'boat and a bar'e loaded #ith %ar'oes #ith the tu'boat to#in' the %ar'oe vessel for loadin' and unloadin' %onstitute a >I)JF? @?>>?F. Thus" the en'ines" spare parts and e-uipment imported b& it and used in the repair and maintenan%e of its tu'boats are exempt from %ompensatin' tax. *n the other hand" CTA %ontended that Otu'boatsO are not OCar'o vesselO be%ause the& are neither desi'ned nor used for %arr&in' and$or transportin' persons or 'oods b& themselves but are mainl& emplo&ed for to#in' and pullin' purposes. Thus" the& do not fall #$in the purvie# of the Tax Code amended b& RA 3:BL.

I/ 0$n the tax exemption a%%orded to %ar'o vessels also appli%able to the tu'boats )*. :) The 'eneral rule is that an& %laim for exemption from the tax statute should be stri%tl& %onstrued a'ainst the taxpa&er. In order that the importations in -uestion ma& be de%lared exempt from the %ompensatin' tax" it is indispensable that the re-uirements of the amendator& la# be %omplied #ith" namel&/ o :) the en'ines and spare parts must be used b& the importer himself as a passen'er and$or %ar'o vessel o ;) the said passen'er and$or %ar'o vessel must be used in %oast#ise or o%ean'oin' navi'ation A%%d' to 0ebster" 6a tu'boat is a stron'l& built" po#erful steam or po#er vessel" used for to#in' and" no#" also used for attendan%e on vessel.7 Jrolier ?n%&%lopedia further provides that 6a tu'boat is a diesel or steam po#er vessel desi'ned primaril& for movin' lar'e ships to and1 from piers for to#in' bar'es and li'hters in harbors" rivers and %anals.7 It is" a%%ordin' to 9ouvier1s" 6a vessel built for T*0I)J.7 Clearl&" the %orporation1s tu'boats do )*T fall under the %ate'ories of passen'er and$or %ar'o vessels. It is a %ardinal prin%iple of statutor& %onstru%tion that #hen the la# is %lear" no interpretation is needed. ;) Re'ardless of %onstru%tion and interpretation" it is also a fundmental rule that statutes are to be %onstrued in the li'ht of purposes to be a%hieved and the evils sou'ht to be remedied. In this %ase" the le'islature in amendin' >e%tion :H0 of the Tax Code b& RA 3:BL intended to provide in%entives and indu%ements to b ls!er !$e s$ippin' in"us!r& and )*T the business of stevedorin'" as manifested in the sponsorship spee%h of >enator Jil Pu&at. *n anal&sis of the %orporation1s transa%tions" CTA found no eviden%e that tu'boats are passen'er and$or %ar'o vessels used in the shippin' industr& as an independent business. *n the %ontrar&" the %orporation1s o#n eviden%e supports the vie# that it is en'a'ed as a stevedore" i.e. the #or of unloadin' and loadin' of a vessel in port, and to#in' of bar'es %ontainin' %ar'oes is a part of its underta in' as a stevedore. Its trade name is indi%ative that its sole and prin%ipal business is stevedorin' and li'htera'e" taxed under >e%tion :H: of the )ational Internal Revenue Code as a %ontra%tor" and not an entit& #hi%h transports passen'ers or frei'ht for hire #hi%h is taxed under >e%tion :H; of the same Code as a %ommon %arrier b& #ater.

Na!i nal Devel p#en! C #pan& v CIR The )4C entered into %ontra%ts in To &o #ith several Kapanese shipbuildin' %ompanies for the %onstru%tion of :; o%ean.'oin' vessels. The pur%hase pri%e #as to %ome from the pro%eeds of bonds issued b& the Central 9an . Initial pa&ments #ere made in %ash and throu'h irrevo%able letters of %redit. :< promissor& notes #ere si'ned for the balan%e b& the )4C and" as re-uired b& the shipbuilders" 'uaranteed b& the Republi% of the Philippines. The remainin' pa&ments and the interests thereon #ere remitted in due time b& the )4C to To &o.

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The vessels #ere eventuall& %ompleted and delivered to the )4C in To &o. )4C remitted to the shipbuilders in To &o the total amount of about 5>X<E! as interest on the balan%e of the pur%hase pri%e. )o tax #as #ithheld. The Commissioner then held the )4C liable on su%h tax in the total sum of P5 !. )e'otiations follo#ed but failed. The 9IR thereupon served on the )4C a #arrant of distraint and lev& to enfor%e %olle%tion of the %laimed amount. The )4C #ent to the CTA" #$% ruled in favor of the 9IR" ex%ept for a sli'ht redu%tion of the tax defi%ien%& in the sum of PH00" representin' the %ompromise penalt&. I/ 0$n )4C should be held liable for for #ithholdin' taxes on the interest remitted to the Kapanese %orporation R/ C?>. The interest remitted to the Kapanese shipbuilders in Kapan on the 5)PAI4 9AFA)C? of the pur%hase pri%e of the vessels a%-uired b& )4C is interest derived from sour%es #ithin the Philippines and therefore sub=e%t to in%ome tax under the )IRC. The la#" ho#ever" does not spea of a%tivit& but of the >*5RC?. The Jovernment1s ri'ht to lev& and %olle%t in%ome tax on interest re%eived b& forei'n %orporations not en'a'ed in trade or business #ithin the Philippines is )*T based on the %ondition that the ACTI@ITC be in the Philippines. Instead" it is the R?>I4?)C? of the obli'or #ho pa&s the interest that is material in determinin' the sour%e of interest. It is not the ph&si%al lo%ation of the se%urities" bonds or notes or the pla%e of pa&ment. The la# spe%ifies/ 6interest derived from >*5RC?> #ithin the Philippines and interests on bonds" notes or other interest bearin' obli'ations of residents" %orporate or other#ise.7 In this %ase" )4C is a Philippine %orporation en'a'ed in the business in the Philippines" it is a domesti% %orporation and resident of the Philippines. Thus" it is sub=e%t to tax. ;) )4C also has no basis for sa&in' that the interest pa&ments #ere obli'ations of the Republi% of the Philippines and that the 'overnment notes #ere exempt from taxation. The la# invo ed (RA :<0B) did )*T state an& exemption on said interest on se%urities. )4C has not established an& tax exemption on the said transa%tion. The 'overnment #as )*T the one #ho issued the notes but merel& 'uaranteed the said issuan%es. Tax exemptions %annot be merel& implied but must be %ate'ori%all& and unmista abl& expressed. An& doubt %on%ernin' this -uestion must be resolved in favor of the taxin' po#er. :H In su''estin' that the )4C is merel& an administrator of the funds of the Republi% of the Philippines" the )4C %loses its e&es to the nature of the entit& as a %orporation. As su%h" it is 'overned in its proprietar& a%tivities not onl& b& its %harter but also b& the Corporation Code and other pertinent la#s. <) Fastl&" it must be noted that )4C is )*T the one bein' taxed. The tax #as due on the interests earned b& the Kapanese shipbuilders. It #as the in%ome of these %ompanies and )*T the Republi% of the Philippines that #as sub=e%t to the tax the )4C did not #ithhold.

In effe%t" therefore" the imposition of the defi%ien%& taxes on the )4C is a penalt& for its failure to #ithhold the same from the Kapanese shipbuilders" as imposed b& the Tax Code. FA>TFC" the %ourt has stated that in %ase of the doubt" the one #ithholdin' %an =ust the pa& tax and as for refund later #hen an error in the pa&ment exists.

,anila Elec!ric C #pan& v 1era Eeral%o #as the holder of a fran%hise to %onstru%t" maintain" and operate an ele%tri% li'ht" heat" and po#er s&stem in the Cit& of Eanila and its suburbs. In :HL; and :HL3" Eeral%o imported and re%eived from abroad %opper #ires" transformers" and insulators for use in the operation of its business. The Colle%tor of Customs" as deput& of the Commissioner of Internal Revenue" levied and %olle%ted a %ompensatin' tax. Eeral%o %laimed for refund for the said &ears" but su%h %laims #ere either not a%ted upon or denied b& the Commissioner. I/ 0$n Eeral%o is exempt from pa&ment of a %ompensatin' tax on poles" #ires" transformers and insulators imported b& it for use in the operation of its ele%tri% li'ht" heat" and po#er s&stem R/ )*. Eeral%o is not exempt from pa&in' the %ompensatin' tax provided for in >e%tion :H0 of the Tax Code. The purpose of >e%tion :H0 of the Tax Code is to 6pla%e %asual importers" #ho are not mer%hants on e-ual footin' #ith established mer%hants #ho pa& sales tax on arti%les imported b& them.7 E?RAFC*1s %laim for exemption from pa&ment of the %ompensatin' tax is not %lear or expressed" %ontrar& to the rule that 6exemptions from taxation are hi'hl& disfavored in la#" and he #ho %laims exemption must be able to =ustif& his %laim b& the %learest 'rant of or'ani% or statute la#.7 Tax exemption are stri%tl& %onstrued a'ainst the taxpa&er" the& bein' hi'hl& disfavored and ma& almost be said to be 6odious to the la#.7 0hen exemption is %laimed" it must be sho#n indubitabl& to exist" for ever& presumption is a'ainst it" and a #ell.founded doubt is fatal to the %laim. ,ace"a v ,acarai' >in%e Ea& ;B" :HBL (#hen P4 H32 #as issued) until Kune ::" :H2< #hen P4 :H3: #as promul'ated (abolishin' the tax exemptions of all J*CCs)" oil firms never paid ex%ise or spe%ifi% and ad valorem taxes for petroleum produ%ts sold and delivered to the )PC. This non.pa&ment of taxes spanned for 2 &ears. The oil %ompanies started to pa& spe%ifi% and ad valorem taxes on their sales of oil produ%ts to )PC onl& after the promul'ation of P4 :H3: #$% #ithdre# all exemptions 'ranted in favor of J*CCs and empo#erin' the Ais%al In%entives Revie# 9oard (AIR9) to re%ommend to the President or to the Einister of Ainan%e the restoration of the exemptions #hi%h #ere #ithdra#n. AIR9 issued Resolution :0.25 #$% restored the tax exemption privile'es of )PC effe%tive retroa%tivel& to Kune ::" :H2< up to Kune 30" :H25. Thus" the )PC applied #ith the 9IR for a refund of >pe%ifi% Taxes paid on petroleum produ%ts in the total amount of about P52 !. Ea%eda" >enate member" introdu%ed Resolution ;; #$% #as aimed at %ondu%tin' an in-uir& in aid of le'islation in line #$ the reported tax manipulations and evasions b& oil %ompanies (parti%ularl& Caltex" >hell and Petrophil) b& availin' of their non.existin' exemption of )PC from indire%t taxes" #$% resulted in obtainin' a tax refund totalin' P :.55 9illion from the 4epartment of Ainan%e

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The 9lue Ribbon Committee %ondu%ted a len'th& formal in-uir& on the matter and re%ommended that the tax refund to )PC be %an%elled" and also to %an%el the approval of deed of Assi'nment b& )PC to Caltex" and %olle%t from Caltex its tax liabilities #hi%h #ere erroneousl& treated as paid or settled #ith the use of the tax %redit %ertifi%ate that )PC assi'ned to said firm. Ea%eda %ontended that the exemption of )PC from I)4IR?CT TAGATI*) #as revo ed and repealed b& the latest amendment to the )PC %harter b& P4 H32" b& the deletion of the phrases 6dire%tl& or indire%tl&7 and 6on all petroleum produ%ts used b& the Corporation in the 'eneration" transmission" utili8ation and sale of ele%tri% po#er7 The exemption of )PC provided in >e%tion of P4 H32 re'ardin' the pa&ments of 6all forms of taxes" et%7 %annot be interpreted to in%lude indire%t tax ex%eption sin%e tax statutes must be stri%tl& %onstrued a'ainst the one %laimin' the exemption must be stri%tl& %onstrued a'ainst the one %laimin' the exemption I/ 0$n )PC is liable for indire%t tax R/ )*" )PC is )*T liable for indire%t tax Indire%t taxes are taxes primaril& paid b& persons #ho %an shift the burden upon someone else. Aor example" the ex%ise and ad valorem taxes that oil %ompanies pa& to the 9IR upon removal of petroleum produ%ts from its refiner& %an be shifted to its bu&er" li e the )PC" b& addin' them to the 6%ash7 and$or 6sellin' pri%e7. In interpretin' a statute" le'islative intent must be as%ertained .. the reason for its ena%tment should be ept in mind and the statute should be %onstrued #ith referen%e to its intended purpose ! the evil sou'ht to be remedied. In this %ase" )PC is a non.profit publi% %orporation %reated for the 'eneral 'ood and #elfare (development of h&droele%tri% 'eneration of po#er and produ%tion of ele%tri%it& from other sour%es) #holl& o#ned b& the 'overnment. Arom the ver& be'innin' of its %orporate existen%e" the )PC en=o&ed preferential tax treatment to enable the Corporation to pa& the indebtedness and obli'ation and in furtheran%e and effe%tive implementation of the poli%& enun%iated in >e% : of RA L3H5. Arom the %han'es made in the )PC %harter" the intention to stren'then its preferential tax treatment is obvious. In the earlier la#" RA 352 the exemptions #as #orded in 'eneral terms" as to %over 6all taxes" duties" fees" imposts" %har'es" et%7 Do#ever" the amendment under RA L3H5 enumerated the details %overed b& the exemption. >ubse-uentl&" P4 320" made even more spe%ifi% the details of the exemption of )PC to %over" amon' others" both dire%t and indire%t on all petroleum produ%ts used in its operation. P4 H32 amended the tax exemption b& simplif&in' the same la# in 'eneral terms. It su%%in%tl& exempts )PC from 6all forms of taxes" duties" fees" imposts7 as #ell as %osts and servi%e fees in%ludin' filin' fees" appeal bonds" supersede as bonds" in an& %ourt or administrative pro%eedin's.7 The use of the phrase Oall formsO of taxes demonstrate the intention of the la# to 'ive )PC all the tax exemptions. Provisions 'rantin' exemptions to 'overnment a'en%ies ma& be %onstrued liberall&" in favor of non.tax liabilit& of su%h a'en%ies. Thus" the rule that tax exemptions should be stri%tl& %onstrued is )*T appli%able to )PC. The practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. In the %ase of propert& o#ned b& the state or a %it& or other publi% %orporations" the express exemption should not be %onstrued #ith the same de'ree of stri%tness that applies to exemptions %ontrar& to the poli%& of the state" sin%e as to su%h propert& Oexemption is the rule and taxation the ex%eption.O

,ace"a v ,acarai' ,R 5nfa8ed b& the 4e%ision that the >C de%ision" Ea%eda filed a motion for re%onsideration. In the pro%ess" a hearin' #as held on Kul& H" :HH; #here all parties presented their respe%tive ar'uments. Do#ever" the ER #as denied. :) 4$a! /in" ) !a% e%e#p!i n privile'es " es NPC $aveM Ea%eda %ontended that P4 H32 repealed the indire%t tax exemption of )PC as the phrase Oall forms of taxes et%."O in its se%tion :0" amendin' >e%tion :3" R.A. )o. L3H5" as amended b& P.4. )o. 320" does not expressl& in%lude Oindire%t taxes.O The >C does not a'ree #ith this as a %hronolo'i%al revie# of the )PC la#s #ill sho# that it has been the la#ma erRs intention that the )PC #as to be %ompletel& tax exempt from all forms of taxes U dire%t and indire%t. )PCRs tax exemptions at first applied to the bonds it #as authori8ed to float to finan%e its operations upon its %reation b& virtue of C.A. )o. :;0. 0hen the )PC #as authori8ed to %ontra%t #ith the I9R4 for forei'n finan%in'" an& loans obtained #ere to be %ompletel& tax exempt. After the )PC #as authori8ed to borro# from other sour%es of funds U aside issuan%e of bonds U it #as a'ain spe%ifi%all& exempted from all t&pes of taxes Oto fa%ilitate pa&ment of its indebtedness.O ?ven #hen the %eilin's for domesti% and forei'n borro#in's #ere periodi%all& in%reased" the tax exemption privile'es of the )PC #ere maintained. )PCRs tax exemption from real estate taxes #as" ho#ever" spe%ifi%all& #ithdra#n b& RA H2B but #as restored b& RA L3HL. Eoreover" P4 H32" #hi%h raised its %apital sto% and 5>4 borro#in' rate" expressl& states that the )PC must not onl& be able to pa& its indebtedness but also to be exempt from AFF forms of taxes if its 'oal is to be a%hieved. ;) F r ;$a! peri "s in !i#e ;ere !$ese privile'es bein' en( &e"M In the %ase of the tax exemption restoration of )PC" there is no other %omparable entit& U not even a sin'le publi% or private %orporation U #hose ri'hts #ould be violated if )PCRs tax exemption privile'es #ere to be restored. 0hile there mi'ht have been a E?RAFC* before Eartial Fa#" it is of publi% no#led'e that the E?RAFC* 'eneratin' plants #ere sold to the )PC in line #ith the >tate poli%& that )PC #as to be the >tate implementin' arm for the ele%trifi%ation of the entire %ountr&. 9esides" E?RAFC* #as limited to Eanila and its environs. And as of :H2<" there #as no more E?RAFC* U as a produ%er of ele%tri%it& U #hi%h %ould have ob=e%ted to the restoration of )PCRs tax exemption privile'es. It should be noted that )PC #as not as in' to be 'ranted tax exemption privile'es for the first time. It #as =ust as in' that its tax exemption privile'es be restored. Thus" )PC had its tax exemption privile'es restored from :H2< to the present. 3) I) !$ere are !a%es ! be pai", ;$ s$all pa& ) r !$ese !a%esM The oil %ompanies #hi%h suppl& bun er fuel oil to )PC have to pa& the taxes imposed upon said bun er fuel oil sold to )PC. 9& the ver& nature of indire%t taxation" the e%onomi% burden of su%h taxation is expe%ted to be passed on throu'h the %hannels of %ommer%e to the user or %onsumer of the 'oods sold.

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D*0?@?R" be%ause )PC has been exempted from both dire%t and indire%t taxation" the )PC must beheld exempted from absorbin' the e%onomi% burden of indire%t taxation. This means" on the one hand" that the oil %ompanies #hi%h #ish to sell to )PC absorb all or part of the e%onomi% burden of the taxes previousl& paid to 9IR" #hi%h %ould the& shift to )PC if )PC did not en=o& exemption from indire%t taxes. This means also" on the other hand" that the )PC ma& refuse to pa& the part of the OnormalO pur%hase pri%e of bun er fuel oil #hi%h represents all or part of the taxes previousl& paid b& the oil %ompanies to 9IR. If )PC nonetheless pur%hases su%h oil from the oil %ompanies U be%ause to do so ma& be more %onvenient and ultimatel& less %ostl& for )PC than )PC itself importin' and haulin' and storin' the oil from overseas U )PC is entitled to be reimbursed b& the 9IR for that part of the bu&in' pri%e of )PC #hi%h verifiabl& represents the tax alread& paid b& the oil %ompan&.vendor to the 9IR.

A. Chronological review of the relevant N C laws with respect to tax exe!ption provisions !. 6ovember I, !EIF# C) !$A was enacted creating the 6ational 9ower Corporation J69C" to develop hydraulic power from all sources in the 9hilippines with a sum of 9$LA,AAA appropriated from the 9hilippine Treasury, whose main source of funds shall be exempt from taxation. $. /une K, !EKE# 3) ILM was enacted authori(ing the 9resident to guarantee absolutely and unconditionally as primary obligor the payment of all 69C loans, wherein such loans shall be exempt from taxes. I. 7n the same date, it was authori(ed for the first time to incur other types of indebtedness which shall also be exempt from taxation. K. /anuary $$, !EMK# 92 IPA was issued to give extra powers to 69C, wherein its capital stock was raised to 9$ billion, and was authori(ed to borrow a total of =&2 ! billion. L. 8ay $M, !EMF# 92 EIP was issued, raising its ceiling of indebtedness to 9!$ billion and its =&2 borrowing rate at =&2 K billion. &everal tax laws were enacted that challenged the tax exemptions imposed on 69C. First, in !EMF, 92 PP$ was passed withdrawing the tax exemption of 69C with regard to imports in order to reduce foreign exchange spending and to protect domestic industries. &econd, 92 !!MM was issued as it was the declared policy of the &tate to formulate and implement a 6ational Budget that is an instrument of national development and that due to this, all units of government, including <7CCs, shall pay income taxes, customs duties and other taxes and fees imposed under revenue laws, provided that organi(ations otherwise exempted by law from the payment of such taxes;duties may ask from a &=B&.2: from the <eneral Fund. Third, 92 !EI! was passed in !EPK, due to the economic morass after the )Duino )ssociation. The 2ecree expressly repeals the grant of tax privileges to any <7CCs and all other units of the government. 'astly, in !EPF, 47 EI J&OPF" was issued with a view to correct presidential restoration or grant of tax exemption to other government and private entities without benefit of a review by the Fiscal .ncentives 3eview Board. CIR v G !a#c K S ns, Inc. The 0orld Dealth *r'ani8ation (0D*) is an international or'ani8ation #hi%h has a re'ional offi%e in Eanila. As an international or'ani8ation" it en=o&s privile'es and immunities #hi%h are defined more spe%ifi%all& in the H s! A'ree#en! entered into bet#een the Philippines and the said *r'ani8ation. Sec!i n 66 of the A'reement provides that the *r'ani8ation" its assets" in%ome and other properties shall be/ e%e#p! )r # all "irec! an" in"irec! !a%es. .t is

understood, however, that the 7rgani(ation will not claim exemption from taxes which are, in fact, no more than charges for public utility services. 0hen the 0D* de%ided to %onstru%t a buildin' to house its o#n offi%es" as #ell as other 5) offi%es in Eanila" it entered into a further a'reement #ith the Jovernment of the Philippines #hi%h stated that the *r'ani8ation ma& import into the %ountr& materials and fixtures re-uired for the %onstru%tion )ree )r # all "u!ies an" !a%es and a'rees not to utili8e an& portion of the international reserves of the Jovernment. In invitin' bids for the %onstru%tion of the buildin'" the 0D* informed the bidders that the buildin' to be %onstru%ted belon'ed to an international or'ani8ation #ith diplomati% status and thus exempt from the pa&ment of AFF fees" li%enses" and taxes. Thus" their bids Omust ta e this into a%%ount and should not in%lude items for su%h taxes" li%enses and other pa&ments to Jovernment a'en%ies. The %onstru%tion %ontra%t #as a#arded to < $n G !a#c K S ns, Inc. on Aebruar& :0" :H52 for a pri%e upon %ompletion of P<5; ! The CIR imposed a %ontra%tor1s tax and stated that Oas the 33 %ontra%torRs tax is not a dire%t nor an indire%t tax on the 0D*" but a tax that is primaril& due from the C*)TRACT*R" the same is not %overed b& the Dost A'reement. The CIR sent a letter of demand to Jotam%o demandin' pa&ment of about P:L ! representin' the 33 %ontra%torRs tax plus sur%har'es on the 'ross re%eipts it re%eived from the 0D*. Jotam%o appealed the CIRRs de%ision to the CTA" #hi%h rendered a de%ision in favor of Jotam%o and reversed the CIR1s de%ision. I/ 0$n Jotam%o should pa& 33 %ontra%torRs tax under >e%tion :H: of the )IrC from the %onstru%tion of the 0D* buildin' in Eanila R/ )*. :) CIR1s %ontention that the %ontra%tor1s tax is an ex%ise tax imposed upon the %onta%tor (privile'e of doin' business) #ith no bearin' on the 0D* (thus" )*T an indire%t tax on 0D*)" %annot hold #ater. 4ire%t taxes are those that are demanded from the ver& person #ho should pa& them #hile indire%t taxes are those that are demanded in from one person in the expe%tation that he %an shift the burden to someone else. The %ontra%torRs tax is %ourse pa&able b& the %ontra%tor but in the last anal&sis it is the *0)?R of the buildin' that shoulders the burden of the tax be%ause the same is shifted b& the %ontra%tor to the o#ner as a matter of self.preservation. Thus" it is an indire%t tax on 0D* be%ause" althou'h it is pa&able b& the petitioner" the latter %an shift its burden on the 0D*. ;) CIR %laims that in Philippine A%et&lene Co. vs. CIR" the 33 %ontra%torRs tax fans dire%tl& on Jotam%o and %annot be shifted to the 0D*. D*0?@?R" the said %ase is not %ontrollin'" sin%e the Dost A'reement spe%ifi%all& exempts the 0D* from Oindire%t taxes.O The 9hilippine )cetylene %ase involved a tax on >AF?> of 'oods #hi%h under the la# had to be paid b& the manufa%turer or produ%er, the fa%t that the manufa%turer or produ%er mi'ht have added the amount of the tax to the pri%e of the 'oods did not ma e the sales tax Oa tax on the pur%haser.O

ICIR v CA an" C,CA CECA is a non.sto% " non.profit institution" #hi%h %ondu%ts various pro'rams and a%tivities that are benefi%ial to the publi%" espe%iall& the &oun' people" pursuant to its reli'ious" edu%ational and %haritable ob=e%tives.

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In :H20" CECA" amon' others" an amount of in%ome (about PB00 !) from leasin' out a portion of its premises to small shop o#ners" li e restaurants and %anteen operators" and from par in' fees %olle%ted from non.members. The CIR thus issued an assessment to CECA totalin' about P<:5 ! in%ludin' sur%har'e and interest" for defi%ien%& in%ome tax" defi%ien%& expanded #ithholdin' taxes on rentals and professional fees and defi%ien%& #ithholdin' tax on #a'es. CECA protested the assessment and filed a letter. In repl&" the CIR denied the %laims of CECA. CECA thus filed a petition to the CTA to ta e out the taxes and CTA ruled in favor of CECA. CIR filed a petition #ith the CA to reverse" but CA affirmed CTARs de%ision. I/ 0$n the in%ome derived from rentals of real propert& o#ned b& CECA (established as Oa #elfare" edu%ational and %haritable non.profit %orporationO) is sub=e%t to in%ome tax under the )IRC and Constitution R/ C?>" the in%ome derived b& CECA from rentals of its real propert& is sub=e%t to in%ome tax. Under the NIRC: 0hile >e%tion ;B of the )IRC provides that non.profit or'ani8ations and %lubs shall not be taxed on their in%ome" it also provides that this exemption #ill )*T appl& to in%ome derived from :) properties" real or personal" and ;) an& other a%tivities %ondu%ted for profit shall be sub=e%t to tax (amended b& P4 :<5B). Appl&in' the do%trine of stri%t interpretation of tax exemptions" the phrase Oan& of their a%tivities %ondu%ted for profit7 does )*T -ualif& the #ord 6properties.7 This ma es in%ome from the propert& of the or'ani8ation taxable" re'ardless of ho# that in%ome is used .. #hether for profit or for loft& non.profit purposes. Under the Constitution: Arti%le @I" >e%tion ;2 of the Constitution exempts 6%haritable institutions7 from the pa&ment not onl& of taxes. D*0?@?R" a%d' to %onsti framers" the exemption does )*T pertain to in%ome tax but onl& propert& taxes. Aor the CECA to be 'ranted the exemption as an 6edu%ational institution7 under the Consti (Art :< >e% <)" it must prove #ith substantial eviden%e that/ %. it falls under the %lassifi%ation non.sto% " non.profit edu%ational institution, and d. the in%ome it see s to be exempted from taxation is used a%tuall&" dire%tl&" and ex%lusivel& for edu%ational purposes Do#ever" no eviden%e #as submitted b& CECA to prove that the& met the re-uisites. The term 6edu%ational institution7 or 6institution of learnin'7 has a%-uired a #ell. no#n te%hni%al meanin'" of #hi%h the members of the Constitutional Commission are deemed %o'ni8ant. 5nder the ?du%ation A%t of :H2;" su%h term refers to s%hools" #hi%h is s&non&mous #ith formal edu%ation *R a s%hool seminar&" %olle'e" or edu%ational establishment. The Court" upon examinin' the 6Amended Arti%les of In%orporation7 and 69&.Fa#s7 of the CECA" but found nothin' in them that even hints that it is a s%hool or an edu%ational institution. ?ven if CECA is an edu%ational institution" the Court also notes that CECA did not submit proof of the proportionate amount of the sub=e%t in%ome that #as a%tuall&" dire%tl& and ex%lusivel& used for edu%ational purposes.

)itafan" et%. #ere dul& appointed and -ualified Kud'es in the RTC" )CR. The& sou'h to prohibit CIR and the Ainan%ial *ffi%er of the >C" from ma in' an& dedu%tion of #ithholdin' taxes from their salaries. A%%ordin' to them" an& tax #ithheld from their %ompensation as =udi%ial offi%ers %onstitutes a de%rease or diminution of their salaries" %ontrar& to the provision of >e%tion :0" Arti%le @III of the :H2B Constitution mandatin' that durin' their %ontinuan%e in offi%e" their salar& shall not be de%reased. The& also %ited the %ases of Perfe%to vs. Eeer and ?nden%ia vs. 4avid #ould appl& #hi%h de%lared the salaries of members of the Kudi%iar& exempt from pa&ment of the in%ome tax and %onsidered su%h pa&ment as a diminution of their salaries durin' their %ontinuan%e in offi%e I/ 0$n the #ithholdin' tax on =udi%ial offi%ers is un%onstitutional R/ )*" it is %onstitutional. The intent of the Constitutional Commission #as to delete the proposed express 'rant of exemption from pa&ment of in%ome tax to members of the Kudi%iar&" so as to O'ive substan%e to e-ualit& amon' the three bran%hes of JovernmentO in the #ords of Commissioner Ri'os. In the %ourse of the deliberations" it #as further expressl& made %lear" spe%ialt& #ith re'ard to Commissioner 9ernasR a%%epted amendment to the amendment of Commissioner Ri'os" that the salaries of members of the Kudi%iar& #ould be sub=e%t to the 'eneral in%ome tax applied to all taxpa&ers. The Court thus dis%arded the rulin' in Perfe%to vs. Eeer and ?nden%ia vs. 4avid that de%lared the salaries of members of the Kudi%iar& exempt from pa&ment of the in%ome tax and %onsidered su%h pa&ment as a diminution of their salaries durin' their %ontinuan%e in offi%e. Also" the salaries of Kusti%es and Kud'es are properl& sub=e%t to a 'eneral in%ome tax la# appli%able to all in%ome earners. The pa&ment of su%h in%ome tax b& Kusti%es and Kud'es does )*T fall #ithin the %onstitutional prote%tion a'ainst de%rease of their salaries durin' their %ontinuan%e in offi%e. Besides, construing &ection !A, )rticles 5..., of the !EPM Constitution, which, for clarity, is again reproduced hereunder >The salary of the Chief /ustice and of the )ssociate /ustices of the &upreme Court, and of ,udges of lower courts shall be fixed by law. 2uring their continuance in office, their salary shall not be decreased> J.talics supplied". .t is plain that the Constitution authori(es Congress to pass a law fixing another rate of compensation of /ustices and /udges but such rate must be higher than that which they are receiving at the time of enactment, or if lower, it would be applicable only to those appointed after its approval. .t would be a strained construction to read into the provision an exemption from taxation in the light of the discussion in the Constitutional Commission.

Ni!a)an v CIR

IPr vince ) Abra v Hernan" The Roman Catholi% 9ishop of 9an'ued #anted to be exempted from pa&ment of real estate tax. De filed an a%tion for de%larator& relief in the CAI of Abra. The CAI rendered a summar& =ud'ment 'rantin' the exemption. The Provin%e of Abra filed an a%tion for %ertiorari a'ainst the CAI on the 'round that it 'ranted the a%tion for de%larator& relief filed b& the Roman Catholi% 9ishop #ithout allo#in' the Provin%e to ans#er and #ithout hearin'" in violation of its ri'ht to due pro%ess.

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It also alle'ed that the =ud'e (Dernando) failed to abide P4 )o. <L< #hi%h states that" 6)o %ourt shall entertain an& suit A>>AIFI)J the validit& of tax until the taxpa&er pa&s under protest the tax assessed a'ainst him.. nor shall an& %ourt de%lare an& portion of the tax assessed I)@AFI4 ex%ept if the taxpa&er shall pa& the =ust amount of tax determined b& the %ourt.7 I/ 0$n the =ud'ment of the %ourt 'rantin' the exemption to the Roman Catholi% 9ishop of 9an'ued is valid R/ )*" it is invalid In order to exempt reli'ious institutions from the pa&ment of real estate taxes" the propert& must be use" e%clusivel&, ac!uall&, an" "irec!l& ) r reli'i us purp ses. T$us, To be exempted from realt& tax" there must be proof of ACT5AF and 4IR?CT use of the propert& for reli'ious or %haritable purposes. In this %ase" the ri'ht of the Provin%e of Abra to pro%edural due pro%ess #as violated b& the summar& =ud'ment 'rantin' the exemption. Instead of a%%eptin' the bare alle'ation of the bishop that the propert& #as bein' used ex%lusivel&" dire%tl&" and a%tuall& for publi% purposes" the =ud'e should have first re-uired proof of these alle'ations.

I CIR v. ,i!subis$i ,e!al C rp.5 In!erna!i nal C #i!& Atlas Consolidated Einin' entered into a Foan and >ales Contra%t #ith Eitsubishi. 5nder the Contra%t" Eitsubishi #ould lend Atlas X;0E for the installation of a ne# %on%entrator for %opper produ%tion" and in turn" Atlas #ould sell to Eitsubishi all the %opper %on%entrates produ%ed from the ma%hine for the next :5 &ears. Thereafter" Eitsubishi applied for a loan #ith ?ximban of Kapan and other %onsortium of Kapanese ban s so that it %ould %ompl& #ith its obli'ations under the %ontra%t. The total amount of both loans #as X;0E. Approval of the loan b& ?ximban to Eitsubishi #as sub=e%t to the %ondition that Eitsubishi #ould use the amount as loanto Atlas and as %onsideration for importin' %opper %on%entrates from Atlas. Atlas made interest pa&ments in favor of Eitsubishi totalin' P:3E. The %orrespondin' :53 tax on the interest in the amount of P:.HE #as #ithheld and remitted to the Jovernment. >ubse-uentl&" Eitsubishi and Atlas filed a %laim for tax %redit" re-uestin' that the P:.HE be applied a'ainst their existin' tax liabilities on the 'round that the interest earned b& Eitsubishi on the loan #as exempt from tax. The )IRC provides that in%ome re%eived from loans in the Philippines extended b& finan%in' institutions o#ned" %ontrolled" or finan%ed b& forei'n 'overnments are exempt from tax. Eitsubishi and Atlas %laim that the interest earned from the loan falls under the above exemption be%ause Eitsubishi #as merel& a%tin' as an a'ent of ?ximban " #hi%h is a finan%in' institution o#ned" %ontrolled" and finan%ed b& the Kapanese Jovernment. The& alle'e that Eitsubishi #as merel& the %onduit bet#een Atlas and ?ximban " and that the ultimate %reditor #as reall& ?ximban . I5 0$) the interest in%ome from loans extended to Atlas b& Eitsubishi is ex%luded from 'ross in%ome taxation and therefore ex%luded from #ithholdin' tax. )* R5 Eitsubishi #as not a mere a'ent of ?ximban . It entered into the a'reement #ith Atlas in its o#n independent %apa%it&. The transa%tion bet#een Eitsubishi and Atlas on the one hand" and bet#een Eitsubishi and ?ximban on the other" #ere separate and distin%t.

Thus" the interest in%ome of the loan paid b& Atlas to Eitsubishi is entirel& different from the interest in%ome paid b& Eitsubishi to ?ximban . 0hat #as sub=e%t of the #ithholdin' tax is not the interest in%ome paid b& Eitsubishi to ?ximban but the interest in%ome earned b& Eitsubishi from the loan to Atlas. >in%e the transa%tion #as bet#een Eitsubishi and Atlas" the exemption that #ould have been appli%able to ?ximban " does not appl&. The interest is therefore not exempt from tax. It is true that under the %ontra%t of loan #ith ?ximban " Eitsubishi a'reed to use the amount as a loan to and in %onsideration for importin' %opper %on%entrates from Atlas" but this onl& proves the =ustifi%ation for the loan as represented b& Eitsubishi #hi%h is a standard ban in' pra%ti%e for evaluatin' the prospe%ts of due repa&ment. 6Fa#s 'rantin' exemption from tax are %onstrued stri%tissimi =uris a'ainst the taxpa&er and liberall& in favor of the taxin' po#er. 0hile international %omit& is invo ed in this %ase on the nebulous representation that the funds involved in the loans are those of a forei'n 'overnment" s%rupulous %are must be ta en to avoid openin' means to violate our tax la#s. *ther#ise" the mere expedient of havin' Phil %orp enter into a %ontra%t for loans #ith private forei'n entities" #hi%h in turn #ill ne'otiate independentl& #ith their 'overnments" %ould be availed to ta e advanta'e of the tax exemption la# under dis%ussion.

I:6s! In)an!r& P s! E%c$an'e v. P sa"as5 In!erna!i nal C #i!& The 3:st Infantr& Post ?x%han'e #as an a'en%& under the %ontrol of the 5> Arm&" operatin' in the Philippines. The ?x%han'e bou'ht 'oods" su%h as soap and toiletries" and resold them to offi%ers" soldiers" and %ivilian emplo&ees of the 5> Arm& and their families. The pro%eeds derived from the sales #ere then used for the betterment of the %ondition of the personnel of the Arm&. In the %ourse of its business" the ?x%han'e pur%hased 'oods from mer%hants in the Philippines. The Colle%tor of Internal Revenue %olle%ted from these mer%hants taxes at the rate of :.53 of the 'ross value sold b& them to the ?x%han'e. The ?x%han'e filed an a%tion for prohibition a'ainst the CIR for him to desist from %olle%tin' the taxes from the mer%hants. The ?x%han'e %laims that the taxes imposed on the mer%hants #ere drivin' up the pri%es of 'oods sold to it b& the mer%hants. The ?x%han'e %laims that the mer%hants should be exempt from taxes sin%e the revenue la# provides that no spe%ifi% tax shall be %olle%ted on an& 'oods sold and delivered dire%tl& to the 5> Arm& of )av& for their a%tual use or issue. I5 0$) the mer%hants sellin' 'oods to the ?x%han'e are exempt from sales tax. )* R5 The tax exemption %overs those 'oods that are sold dire%tl& to the 5> Arm& or )av& for their a%tual use or issue. In this %ase" the 'oods are sold to the ?x%han'e for resale to individuals belon'in' to the Arm& or )av&" and not to the Arm& or )av& itself. Den%e" the& do not fall #ithin the exemption. The rule is that #ithout Con'ressional %onsent" no Aederal a'en%& or instrumentalit& %an be taxed b& state authorit&. Do#ever" nl& !$ se a'encies !$r u'$ ;$ic$ !$e Fe"eral G vern#en! i##e"ia!el& an" "irec!l& e%ercises i!s s verei'n p ;ers are i##une )r # !$e !a%in' p ;er ) !$e s!a!es.

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The reason upon #hi%h the rule rests must be the 'uidin' prin%iple to %ontrol its operation. The limitations upon the taxin' po#er of the state must re%eive a pra%ti%al %onstru%tion #hi%h does not seriousl& impair the taxin' po#er of the Jovernment imposin' the tax. The effe%t of the tax upon the fun%tions of the Jovernment and the nature of the 'overnmental a'en%& determine finall& the extent of the exemption. In this %ase" the tax laid upon Philippine mer%hants #ho sell to the ?x%han'e does not interfere #ith the suprema%& of the 5> Jovernment or #ith the operations of its instrumentalit& the 5> Arm&" to su%h an extent or in su%h a manner as to render the tax ille'al. The tax does not deprive the Arm& of the po#er to serve the Jovernment or hinder the effi%ient exer%ise of its po#er.

P.DT v Ci!& ) Dava PF4T applied for a Ea&or1s Permit to operate its 4avao Eetro ?x%han'e. Cit& of 4avao did not a%t on the appli%ation" pendin' PF4TRs unpaid lo%al fran%hise tax of P3E! (for the first to fourth -uarter of :HHH). PF4T protested the assessment and re-uested a refund of the fran%hise tax paid b& it for the &ear :HHB and the first to the third -uarters of :HH2. 9efore" PF4T en=o&ed tax exemption under >e%tion :; of RA B02; (PF4T shall pa& a fran%hise tax e-uivalent to 33 of all 'ross re%eipts of its business 6in lieu of all taxes on this fran%hise or earnin's thereof). Do#ever" this exemption #as #ithdra#n b& the Fo%al Jovernment Code. PF4T %ontended that it #as still exempt from the pa&ment of fran%hise tax based on an opinion b& the 9ureau of Fo%al Jovernment Ainan%e (9FJA . 4epartment of Ainan%e) #$% amended >e%tion ;3 of RA BH;5 (Publi% Tele%ommuni%ations Poli%& A%t) in effe%t restored its exemptions from lo%al taxes. It states that an& 6advanta'e" favor" privile'e" exemption" or immunit&7 'ranted to existin' fran%hises shall ipso facto be%ome part of previousl& 'ranted tele%ommuni%ations fran%hises. PF4T %laims that >mart and Jlobe en=o& exemption from the pa&ment of the fran%hise tax b& virtue of their le'islative fran%hises. Rel&in' on the 9FJA opinion" PF4T then ar'ues that be%ause >mart and Jlobe are exempt from the fran%hise tax" it follo#s that it must li e#ise be exempt from the tax bein' %olle%ted b& the Cit& of 4avao be%ause the 'rant of tax exemption to >mart and Jlobe ipso facto extended the same exemption to it. Cit& Treasurer 9ar%elona denied PF4TRs protest and %laim for tax refund. The trial %ourt affirmed the Cit& Treasurer1s de%ision. I/ 0$n PF4T is exempt from pa&in' lo%al fran%hise tax R/ )*" PF4T is still liable for fran%hise tax. :) The Fo%al Jovernment Code #ithdre# all tax exemptions previousl& en=o&ed b& all persons" natural or =uridi%al (>e%tion :H3). The FJC further authori8ed lo%al 'overnment units to impose a tax on businesses en=o&in' a fran%hise" not#ithstandin' the 'rant of tax exemption to them (>e%tion :3B). Case la# also rules that tax exemptions are hi'hl& disfavored" and he #ho %laims an exemption must be able to point to some positive provision of la# %reatin' the ri'ht. The exemption must be interpreted in strictissimi ,uris a'ainst the taxpa&er and liberall& in favor of the taxin' authorit&. The a%%eptan%e of PF4T1s theor& #ould result in absurd %onse-uen%es. PF4T1s theor& #ould re-uire that" to level the pla&in' field" an& 6advanta'e" favor" privile'e" exemption" or immunit&7 'ranted to Jlobe must be extended to all

tele%ommuni%ations %ompanies" in%ludin' >mart. This %ould not have been the intent of Con'ress in ena%tin' \;3 of Rep. A%t BH;5. PF4T1s theor& #ill leave the Jovernment #ith the burden of havin' to eep tra% of all 'ranted tele%ommuni%ations fran%hises" lest some %ompanies be treated une-uall&. The fa%t is that the term 6exemption7 in \;3 is too 'eneral. A %ardinal rule in statutor& %onstru%tion is that le'islative intent must be as%ertained from a %onsideration of the statute as a #hole and not merel& of a parti%ular provision. The thrust of R.A. )o. BH;5 is to promote 'raduall& the dere'ulation of the entr&" pri%in'" and operations of all publi% tele%ommuni%ations entities and thus promote a level pla&in' field in the tele%ommuni%ations industr&. There is nothin' in the lan'ua'e of \;3 or in the pro%eedin's of Con'ress in ena%tin' this la# #hi%h sho#s that it %ontemplates the 'rant of tax exemptions to all tele%ommuni%ations entities" in%ludin' those #hose exemptions had been #ithdra#n b& the FJC. ;) Also" the 9FJA is )*T an administrative a'en%& #hose findin's on -uestions of fa%t are 'iven #ei'ht and deferen%e in the %ourts. It #as %reated merel& to provide %onsultative servi%es and te%hni%al assistan%e to lo%al 'overnments and the 'eneral publi% on lo%al taxation" real propert& assessment" and other related matters" amon' others. The -uestion raised b& PF4T is a le'al -uestion" to #it" the interpretation of \;3 of R.A. )o. BH;5. This is outside 9FJARs %ompeten%e. 3) Fastl&" PF4T failed to present an& proof that Jlobe and >mart #ere en=o&in' lo%al fran%hise and business tax exemptions.

ISea3.an" Services Inc. v. CA5 In!erna!i nal C #i!& >ea.Fand" an Ameri%an shippin' %ompan&" entered into a %ontra%t #ith the 5> Jovernment for the transport of militar& household 'oods and effe%ts of 5> militar& personnel assi'ned to the >ubi% )aval 9ase. The 9IR %olle%ted :.53 in%ome tax on the in%ome derived b& >ea.Fand" #hi%h >ea.Fand paid. Fater" >ea.Fand as ed for a refund" %laimin' that it had paid the tax b& mista e. It invo ed the tax exemption provided in the RP.5> Eilitar& 9ases A'reement" #hi%h exempts from tax an& profit derived b& a 5> national under a %ontra%t #ith the 5> 'overnment in %onne%tion #ith the construction, maintenance, operation, and defense of the bases. >ea.Fand filed a petition for revie# #ith the CTA to =udi%iall& pursue its %laim for refund and to stop the runnin' of the ;.&ear pres%riptive period. CTA1s W CA denied refund. I5 0$) >ea.Fand falls #ithin the %overa'e of the tax exemption. )* R5 The transport or shipment of household 'oods and effe%ts of 5>militar& personnel is not in%luded in the term construction, maintenance, operation, and defense of the bases. )either %an the a%tivit& be interpreted as dire%tl& related to the defense and se%urit& of the Philippine territories. It is therefore not %overed b& the exemption. 6Fa#s 'rantin' exemption from tax are %onstrued stri%tissimi =uris a'ainst the taxpa&er and liberall& in favor of the taxin' po#er. Taxation is the rule and exemption is the ex%eption.7 The la# 6does not loo #ith favor on tax exemptions and that he #ho #ould see to be thus privile'ed must =ustif& it b& #ords too plain to be mista en and too %ate'ori%al to be misinterpreted.7 The avo#ed purpose of tax exemption 6is some publi% benefit or interest" #hi%h the la#ma in' bod& %onsiders suffi%ient to offset the monetar& loss entailed in the 'rant of the exemption.7 The haulin' or transport of household 'oods and

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personal effe%ts of 5. >. militar& personnel #ould not dire%tl& %ontribute to the defense and se%urit& of the Philippines. I,eralc v. Pr vince ) .a'una5 Dele'a!i n ! .GUs, I#pair#en! Clause Eeral%o #as 'ranted b& several muni%ipalities of the Provin%e of Fa'una a fran%hise to operate. RA B:L0 or the Fo%al Jov Code of :HH: #as then issued #$% allo#ed lo%al 'overnment units to %reate their o#n sour%es of revenue and to lev& taxes" fees and %har'es %onsistent #$ the basi% poli%& of autonom&. Purusant to this" the provin%e of Fa'una ena%ted an ordinan%e imposin' on businesses en=o&in' a fran%hise a fran%hise tax of 503 of :3 of 'ross annual re%eipts. Eeral%o paid under protest and sent a formal %laim for refund to the Provin%ial Treasurer %laimin' that the fran%hise tax it had paid to the )ational Jovernment (pursuant to P.4. 55:) alread& in%luded the fran%hise tax imposed b& the Provin%ial Tax *rdinan%e. Eeral%o also %ontended that Fa'una1s imposition of fran%hise tax %ontravened the provisions of P.4. 55: >e%tion : #hi%h provided that the fran%hise tax pa&able b& all 'rantees of ele%tri% fran%hises shall be ;3 of their 'ross re%eipts re%eived from the sale of ele%tri% %urrent and from transa%tions in%ident to the 'eneration" distribution and sale of ele%tri% %urrent I/ 0$n the provin%e of Fa'una had the po#er to lev& the fran%hise tax R/ Ces. 5nder the present Constitution" #here there is neither a 'rant nor a prohibition b& statute" the tax po#er must be deemed to exist althou'h Con'ress ma& provide statutor& limitations and 'uidelines. The reason for this is to safe'uard the viabilit& and self.suffi%ien%& of lo%al 'overnment units b& dire%tl& 'rantin' them 'eneral and broad tax po#ers. The FJC of :HH: expli%itl& authori8es provin%ial 'overnments" not#ithstandin' an& exemption 'ranted b& la#" to impose a tax on businesses en=o&in' a fran%hise. 0hile the Court has referred to tax exemptions %ontained in spe%ial fran%hises as bein' in the nature of %ontra%ts and a part of the indu%ement for %arr&in' on the fran%hise" these exemptions" nevertheless" are far from bein' >TRICTFC C*)TRACT5AF. Do#ever" %ontra%tual tax exemptions should not be %onfused #$ tax exemptions under fran%hises. Contra%tual tax exemptions are those a'reed to b& the taxin' authorit& in %ontra%ts" su%h as those %ontained in 'overnment bonds" #here the 'overnment a%ts in its private %apa%it& and #aives its 'overnmental immunit&. Tax exemptions of this ind ma& )*T be revo ed #ithout impairin' the obli'ations of %ontra%ts. *n the other hand" a fran%hise parta es the nature of a 'rant #hi%h is be&ond the purvie# of the non.impairment %lause of the Constitution. Art :; of the Consti provides that no fran%hise for the operation of a publi% utilit& shall be 'ranted ex%ept under the %ondition that su%h privile'e shall be sub=e%t to amendment" alteration or repeal b& Con'ress as and #hen the %ommon 'ood so re-uires. I Tiu v. CA5 E9ual Pr !ec!i n ) !$e .a;s

Con'ress passed RA B;;B #hi%h %reated the >ubi% >pe%ial ?%onomi% Tone" 'rantin' tax and dut& in%entives (tax and dut&.free importations of ra# materials" %apital and e-uipment) to businesses and residents #ithin the area en%ompassed b& the 8one. The la# provides that no lo%al and national taxes shall be imposed #ithin the 8one. In lieu of taxes" 33 of the 'ross in%ome of enterprises operatin' #ithin the 8one shall be remitted to the )ational Jovernment" :3 to the lo%al 'overnment units" and :3 to a development fund to be utili8ed for the development of muni%ipalities outside *lan'apo and >ubi%. Pres. Ramos later issued an ?* spe%if&in' a 6se%ured area7 area #ithin the 8one in #hi%h the privile'es #ere operative. o EO=> tax and dut&.free importations #ill onl& appl& to ra# materials" %apital 'oods and e-uipment brou'ht in b& business enterprises into the >>?T. ?x%ept for import tax and duties" all business are re-uired to pa& the spe%ified taxes in >e%tion :;(%) of RAB;;B. o EO=>3A the tax in%entives are onl& appli%able to business enterprises and individuals residin' #ithin the se%ured area. Petitioners outside the 6se%ured area7 %hallen'ed the %onstitutionalit& of this ?* for alle'edl& bein' violative of their ri'ht to e-ual prote%tion of the la#s. The& assert that the >>?T en%ompasses (:) the Cit& of *lon'apo" (;) the Euni%ipalit& of >ubi% in Tambales" and (3) the area formerl& o%%upied b& the >ubi% )aval 9ase. Do#ever" ?* HB.A" a%%ordin' to them" narro#ed do#n the area #ithin #hi%h the spe%ial privile'es 'ranted to the entire 8one #ould appl& to the present 6fen%ed.in former >ubi% )aval 9ase7 onl&. It has hereb& ex%luded the residents of the first t#o %omponents of the 8one from en=o&in' the benefits 'ranted b& the la#. I5 0$) the ?* %onfinin' the appli%ation of the privile'es under RA B;;B #ithin the se%ured area and ex%ludin' the residents of the 8one outside the se%ured area violates the e-ual prote%tion %lause. )*. R5 There are real and substantive distin%tions bet#een the %ir%umstan%es obtainin' inside and outside the >ubi% )aval base" thereb& =ustif&in' avalid and reasonable %lassifi%ation. Aor a valid %lassifi%ation" the follo#in' re-uisites must be present/ :. it must rest on substantial differen%es, ;. must be 'ermane to the purpose of the la#, 3. must not be limited to existin' %onditions onl&, and <. must appl& e-uall& to all members of the same %lass. In this %ase" the purpose of the la# is to a%%elerate the %onversion of militar& reservations into produ%tive areas (e%onomi% or industrial areas) . Thus" the lands %overed under the Eilitar& 9ases A'reement are its ob=e%t. To a%hieve purpose" Con'ress deemed it ne%essar& to extend e%onomi% in%entives to attra%t and en%oura'e investors. It #as thus reasonable for the President to have delimited the appli%ation of some in%entives to the %onfines of the former >ubi% militar& base" sin%e it is this spe%ifi% area #hi%h the 'overnment intends to transform and develop into a self.sustainin' industrial and e%onomi% 8one" parti%ularl& for the use of bi' forei'n and lo%al investors to use as operational bases for their businesses and industries. These bi' investors possess the %apital ne%essar& to spur e%onomi% 'ro#th and 'enerate emplo&ment opportunities.

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There are substantial differen%es bet#een the bi' investors #ho are bein' lured to establish and operate their industries in the so.%alled 6se%ured area7 and the present business operators outside the area.

9i' investors lured into se%ured areas .billion.peso investments W thousand of ne# =obs .national e%onomi% impa%t .

Present bi8 operators outside the are .no su%h ma'nitude .onl& lo%al e%onomi% impa%t .bi8 a%tivities outside se%ured areas are not li el& to have an& impa%t in a%hievin' purpose of la# #hi%h is to turn former militar& base to produ%tive use for the benefit of the Phil e%onom& There is" then" hardl& an& reasonable basis to extend to them the benefits and in%entives a%%orded in RA B;;B

,ac!an Cebu In!erna!i nal Airp r! Au!$ ri!& v ,arc s Ea%tan Cebu Int1l Airport #as %reated b& virtue of RA LH52" mandated to 6prin%ipall& underta e the e%onomi%al" effi%ient and effe%tive %ontrol" mana'ement" and supervision of the Ea%tan International Airport in the Provin%e of Cebu and the Fahu' Airport in Cebu Cit&.7 5nder >e%tion : of the said RA" ECIA #as 'iven exemption from realt& taxes imposed b& the )ational Jovernment on an& of its politi%al subdivisions" a'en%ies" and instrumentalities. Do#ever" the *ffi%e of the Treasurer of Cebu Cit& demanded pa&ment for realt& taxes on par%els of land belon'in' to the ECIA. ECIA ob=e%ted invo in' its tax exemption. It also asserted that it is an instrumentalit& of the 'overnment performin' 'overnmental fun%tions" %itin' se%tion :33 of the Fo%al Jovernment Code #hi%h puts limitations on the taxin' po#ers of Fo%al Jovernment 5nits. The %it& refused insistin' that ECIA is a J*CC performin' pr prie!ar& fun%tions #hose tax exemption #as #ithdra#n b& >e%tions :H3 and ;3< of the Fo%al Jovernment Code. ECIA filed a de%larator& relief before the RTC. RTC dismissed the petition" rulin' that the FJC 0ITD4R?0 the tax exemption 'ranted to the J*CCs. I/ 0$n the Cit& of Cebu has the po#er to impose taxes on the ECIA R/ C?>. The FJC expressl& repealed the exemption RA LH52" thereb& #ithdra#in' the exemption on realt& tax 'iven to the petitioner. Tax statutes are %onstrued stri%tl& a'ainst the 'overnment and liberall& in favor of the taxpa&er. Do#ever this does not appl& if the 'rantee of the exemption is a politi%al subdivision or instrumentalit& be%ause the effe%t of su%h exemption is merel& to redu%e the amount of mone& that has to be handled b& the 'overnment in the %ourse of its operations. AF>*" sin%e taxation is the rule and exemption is the ex%eption" exemption ma& be #ithdra#n at the pleasure of the taxin' authorit& (ex%eption/ %ontra%tual exemptions). The FJC authori8ed FJ5s to 'rant tax exemption privile'es. Thus" FJ5s ma& also impose real propert& tax ex%ept on real propert& o#ned b& the Republi% of

the Philippines or an& of its politi%al subdivisions. The ex%eption to this is #hen the benefi%ial use has been 'ranted to a taxable person. In this %ase" the land #here the airports mana'ed b& the ECIA #ere ere%ted %an also be levied upon b& the %it& of Cebu for the ECIA1s nonpa&ment of taxes. It #as proven that in the %it& %harter there #as a 6transfer7 of the 6lands"7 from the %it& of Cebu to the petitioner" #hi%h amounted to an absolute %onve&an%e of o#nership not onl& mere benefi%ial use. Thus the o#nership of the land passed from the Republi% of the Philippines to the ECIA. As ECIA o#ns the said land" it CA) be%ome the sub=e%t of lev&in' for the nonpa&ment of taxes. Aurthermore" ECIA is a 6taxable person7 under its Charter" and #as onl& exempted from the pa&ment of real propert& taxes. The 'rant of the privile'e onl& in respe%t of this tax is %on%lusive proof of the le'islative intent to ma e it a taxable person sub=e%t to all taxes" ex%ept real propert& tax. Ainall&" even if the petitioner #as ori'inall& not a taxable person for purposes of real propert& tax" it had alread& be%ome" even if it be %on%eded to be an 6a'en%&7 or 6instrumentalit&7 of the Jovernment" a taxable person for su%h purpose in vie# of the #ithdra#al in the last para'raph of >e%tion ;3< of exemptions from the pa&ment of real propert& taxes applies to the ECIAA. )*T?/ ) distinction should also be made between the phrases 06ational <overnment1 and 03epublic of the 9hilippines1, as they are not interchangeable.03epublic of the 9hilippines1 is broader and synonymous with 0<overnment of the 3epublic of the 9hilippines1 defined as the 0corporate governmental entity through which the functions of government are exercised throughout the 9hilippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the 9hilippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.1 These 0autonomous regions, provincial, city, municipal or barangay subdivisions1 are the political subdivisions. 7n the other hand06ational <overnment1 refers 0to the entire machinery of the central government, as distinguished from the different forms of local governments.1 The 6ational <overnment then is composed of the three great departments the executive, the legislative and the ,udicial. )n 0agency1 of the <overnment refers to 0any of the various units of the <overnment, including a department, bureau, office, instrumentality, or government#owned or controlled corporation, or a local government or a distinct unit therein.1 )n 0instrumentality1 refers to 0any agency of the 6ational <overnment, not integrated within the department framework, vested with special functions or ,urisdiction by law, endowed with some if not all corporate powers, administering special funds, and en,oying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government#owned and controlled corporations .7

CIR v R ber!s n Aran Robertson #as an Ameri%an %iti8en born in the Philippines and repatriated to the 5> #here he resided (Fon' 9ea%h" California) and #as emplo&ed at the 5> )av&. De #as eventuall& assi'ned to >ubi%" *lon'apo due to his #or . Kames" his brother" #as also born in the Philippines and resided in the %ountr& until repatriated to the 5>. De #as also assi'ned to >ubi%" *lon'apo due to his #or in the )av&. Robert Cathe& #as a 5>.born %iti8en #ho be%ame a 5> )av& emplo&ee stationed in Ea ati" EE #hile Kohn Jarrison" a Phil.born Ameri%an %iti8en" #as assi'ned to >ubi% after bein' repatriated to the 5> and =oinin' the militar&.

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TD5>" the& #ere all %iti8ens of the 5nited >tates" holders of Ameri%an passports and admitted as >pe%ial Temporar& @isitors under >e%tion H (a) visa of the Philippine Immi'ration A%t of :H<0" as amended. The& #ere %ivilian emplo&ees in the 5.>. Eilitar& 9ase in the Philippines in %onne%tion #ith its %onstru%tion" maintenan%e" operation" and defense, and in%omes #ere solel& derived from salaries from the 5.>. 'overnment b& reason of their emplo&ment in the 5.>. 9ases in the Philippines. The CIR filed a petition for revie# #$ the >C" %ontendin' that the CTA erred in holdin' that Robertson" et%. #ere" b& virtue of Arti%le GII" Par ; of the RP.5> Eilitar& 9ases A'reement of :H<B" exempt from Philippine in%ome tax. CIR ar'ues that the la#s 'rantin' tax exemptions must be %onstrued stri%tl& a'ainst the taxpa&er" and that the burden of proof is on Robertson" et%. to establish that their residen%e in the %ountr& is b& reason onl& of their emplo&ment in %onne%tion #ith the %onstru%tion" maintenan%e" operation or defense of the 5.>. 9ases in the Philippines (as provided for under Arti%le GII" Par. ; of the RP.5> Eilitar& 9ases A'reement of :H<B). A%%ordin' to CIR" the& failed to dis%har'e this burden" 'iven that the& o#n residential properties in the Phils in their names. I/ 0$n the& are exempted R/ C?>" the& are exempted. An examination of the #ords used and %ir%umstan%es in the A'reement sho#s the basi% intent Oto exempt all 5.>. %iti8ens #or in' in the Eilitar& 9ases from the burden of pa&in' Philippine In%ome Tax #ithout distin%tion as to #hether born lo%all& or born in their %ountr& of ori'in.O In this %ase" respondents and their families upon repatriation in :H<5 had sin%e a%-uired domi%ile and residen%& in the 5nited >tates" and obtained emplo&ment #ith the 5nited >tates Aederal >ervi%e. It #as not until after several &ears of a hiatus that the& returned to the Philippines b& reason of duties #ith the 5> militar& bases in the Philippines #here the& #ere 'ainfull& emplo&ed b& the 5.>. Aederal Jovernment. The situation of the petitioners is of no different mold as of the rest of the 5.>. %ivilian emplo&ees #ho %ontinued to en=o& the benefits of tax exemption under the A'reement" PetitionersR %ir%umstan%es before the -uestioned rulin' remained obtainin' thru the taxable &ears :HLH.:HB;. This Court %annot depart from the plain meanin' of the tax exemption provision. This does not however foreclose the possibility of respondentsO coming to roost in the country contingent upon the termination of their tour of duty, but only then may the bridge be crossed for tax purposes.

-asc v PAGCOR PAJC*R #as %reated b& virtue of P.4. :0LB and 'ranted a fran%hise to establish" operate and maintain 'amblin' %asinos on land or #ater #ithin the territorial =urisdi%tion of the Philippines. Its operation #as ori'inall& %ondu%ted in the #ell no#n floatin' %asino OPhilippine Tourist.O The operation #as %onsidered a su%%ess for it proved to be a potential sour%e of revenue to fund infrastru%ture and so%io.e%onomi% pro=e%ts. >ubse-uentl&"PAJC*R #as %reated under P.4. :2LH to enable the Jovernment to re'ulate and %entrali8e all 'ames of %han%e authori8ed b& existin' fran%hise or permitted b& la# .. parti%ularl& to establish %lubs and amusement 'ames in order to raise revenues for pro=e%ts li e flood %ontrol pro'rams" beautifi%ation" se#era'e and se#a'e pro=e%ts" Tulun'an n' 9a&an Centers" )utritional Pro'rams" Population Control" et%.

PAJC*R is the 3rd lar'est sour%e of 'overnment revenue" next to the 9IR and 9*C. 9as%o" et%. then filed a petition see in' to annul the PAJC*R Charter $ P4 :2LH be%ause it is alle'edl& %ontrar& to morals" publi% poli%& and order. Parti%ularl&" the& alle'e that it #aived the Eanila %it& 'ovRs ri'ht to impose taxes and li%ense fees" #hi%h is re%o'ni8ed b& la#" and that be%ause it intrudes into the lo%al 'ovRs ri'ht to impose lo%al taxes and li%ense fees" it violates the %onstitutionall& enshrined prin%iple of lo%al autonom&. 9ased on the P4 :2LH" PAJC*R as fran%hise holder is exempt from pa&in' tax of an& ind" ex%ept for a fran%hise tax of 53 'ross revenues $ earnin's derived b& the Corporation. I/ 0$n P4 :2LH %reatin' PAJC*R is valid R/ C?>. 9as%o" et%.Rs %ontention that P.4. :2LH %onstitutes a #aiver of the ri'ht of the Cit& of Eanila to impose taxes and le'al fees and violates the prin%iple of lo%al autonom& is 0ITD*5T E?RIT. :) The Cit& of Eanila" bein' a mere Euni%ipal %orporation has no inherent ri'ht to impose taxes. Its Opo#er to taxO therefore must al#a&s &ield to a le'islative a%t #hi%h is superior havin' been passed upon b& the state itself #hi%h has the Oinherent po#er to tax.O ;) Con'ress has the po#er of %ontrol over lo%al 'overnments. If Con'ress %an 'rant the Cit& of Eanila the po#er to tax %ertain matters" it %an also provide for exemptions or even ta e ba% the po#er. TD5>" the Charter of the Cit& of Eanila is sub=e%t to %ontrol b& Con'ress. 3) The Cit& of EanilaRs po#er to impose li%ense fees on 'amblin'" has lon' been revo ed. As earl& as :HB5" the po#er of lo%al 'overnments to re'ulate 'amblin' thru the 'rant of Ofran%hise" li%enses or permitsO #as #ithdra#n b& P.4. )o. BB: and #as vested ex%lusivel& on the )ational Jovernment. <) Fo%al 'overnments have no po#er to tax instrumentalities of the )ational Jovernment. PAJC*R is a J*CC #$ an ori'inal %harter" P4 :2LH. All of its shares of sto% s are o#ned b& the )ational Jovernment" and it also exer%ises re'ulator& po#ers (to re'ulate 'amblin' %asinos). 5) 9as%o" et%. also ar'ues that the Fo%al Autonom& Clause of the Constitution #ill be violated b& P.4. :2LH" but this is also #ithout merit. The po#er of lo%al 'overnment to Oimpose taxes and feesO is al#a&s sub=e%t to OlimitationsO #hi%h Con'ress ma& provide b& la#. >in%e P4 :2LH remains an OoperativeO la# until Oamended" repealed or revo edO" its Oexemption %lauseO remains as an ex%eption to the exer%ise of the po#er of lo%al 'overnments to impose taxes and fees. It %annot therefore be violative but rather is %onsistent #ith the prin%iple of lo%al autonom&. L) 9esides" the prin%iple of lo%al autonom& under the :H2B Constitution simpl& means Ode%entrali8ation.O It does not ma e lo%al 'overnments soverei'n #ithin the state. H7W C)&4 46242 Jpero hindi related, wala lang haha reminiscent of consti" <ambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling.

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<ambling may have been the antecedent, but certainly not necessarily the cause. For the same conseDuences could have been preceded by an overdose of food, drink, exercise, work, and even sex.

Republic v IAC The 9IR initiated an a%tion in the CAI of Eanila to %olle%t defi%ien%& in%ome taxes from the >pouses Pastor for the &ears :H55 to :H5H in the amount of about P:B ! #ith 53 sur%har'e and :3 interest" #ith %osts. After their Eotion to 4ismiss #as denied" the& filed an Ans#er" admittin' that there #as an assessment a'ainst them in the aforementioned amount but that the& had availed of the TAX A,NESTC under PD N s. @:, @6: an" :>B" pa&in' the %orrespondin' amnest& taxes to be able to remove their liabilities. The Jovernment onl& filed the a%tion a'ainst the spouses :0 &ears after the assessment on the defi%ient in%ome taxes #ere made. The CAI ruled in favor of the spouses" sa&in' that their tax liabilities #ere deemed settled under P4 ;:3 (and not the other P4s) as sho#n in the Amnest& In%ome Tax Returns1 >ummar& >tatement and the Tax Pa&ment A%%eptan%e *rder #hi%h %ontain the assessment for the -uestioned &ears. 9& a%%eptin' pa&ment" the Jovernment has therefore 4AI1ED ITS RIGHT to re%over further defi%ien%& in%ome taxes under existin' assessments a'ainst them. The Jov filed an appeal #$ the IAC" alle'in' that the spouses #ere )*T -ualified to avail of the tax amnest& be%ause the benefits %ould onl& be availed of b& persons 0ITD*5T pendin' assessment a'ainst them (a%%ordin' to Revenue Re'ulations )os. 2.B; and B.B3). IAC dismissed the appeal" rullin' that RR B.B3 #as null and void for bein' %ontrar& to$restri%tive of P4 ;:3. I/ 0$n pa&ment of defi%ien%& in%ome taxes under a tax amnest& la# operates to divest the 'overnment of the ri'ht to re%over a'ainst the taxpa&er even if there is an existin' assessment a'ainst the latter R/ C?>. 0hat #as 'ranted under P4 ;:3 is not =ust an exemption but an amnest&" and the Jovernment is estopped from %olle%tin' the differen%e bet#een the defi%ien%& tax assessment and the amount alread& paid b& them as amnest& tax. 9ein' in the nature of a 'eneral pardon$intentional overloo in' of the >tate of its authorit& to impose penalties on persons other#ise 'uilt& of evasion or li e violations" it %onstitutes absolute for'iveness or a #aiver b& the Jovernment of its ri'ht to %olle%t #hat #ould other#ise be due it. The findin's of respondent appellate %ourt that the defi%ien%& in%ome taxes #ere paid b& the spouses and a%%epted b& the 'overnment under P4 ;:3 are entitled the hi'hest respe%t. In %ase of doubt" tax statutes are to be %onstrued stri%tl& a'ainst the Jovernment and liberall& in favor of the taxpa&er. CIR v CA K ROH J<an @B, 6==LH

Au'ust :3" :H2L" CIR assessed R*D Auto Produ%ts" In%. #ith in%ome defi%ien%& and business taxes for fis%al &ears that ended >eptember 30" :H2: and >eptember 30" :H2; in an a''re'ate amount of P:"<:0":5B.B:. Au'ust ;;" :H2L" #hen the President still has le'islative po#ers" promul'ated EO N . A6" de%larin' a one"ti!e tax a!nest# on unpaid inco!e taxes$ later a!ended to include estate and donor%s taxes and taxes on &usiness$ for the taxa&le #ears '()' to '()*. R*D Auto Produ%ts" In%. availed the amnest& and paid the %orrespondin' amnest& taxes due. And re-uested the CIR throu'h a letter that the defi%ien%& tax noti%e should be %an%elled and #ithdra#n. CIR denied the re-uest on the 'round that Revenue Eemorandum *rder )o. <.2B" dated 0H Aebruar& :H2B" implementin' ?* )o. <:" had %onstrued !$e a#nes!& c vera'e ! inclu"e nl& assess#en!s issue" b& !$e -ureau ) In!ernal Revenue a)!er !$e pr #ul'a!i n ) !$e e%ecu!ive r"er n @@ Au'us! 6=N7 an" n ! ! assess#en!s !$ere! ) re #a"e. ROH appeale" !$e "enial ! CTA" and ruled in favor of the taxpa&er. The CTA ruled that provisions in the statute 'rantin' tax amnest& for unpaid taxes from :H2:.:H25 " to ma e taxpa&ers still ans#erable for a tax liabilit& #hi%h" throu'h the statute" should have been erased #ith the proper availment of the amnest&. CA a))ir#e" the de%ision of the CTA. Tax Amnest& is to 'ive tax evaders" #ho #ish to relent and are #illin' to reform" a %han%e to do so b& availin' of the amnest& provided for b& the statute and thereb& be%ome a part of the ne# so%iet& #ith a %lean slate. I/ 0$) Revenue Eemorandum *rder )o. <.2B" promul'ated to implement ?.*. )*. <:" is valid] R/ )*. The authorit& of the Einister of Ainan%e (no# the >e%retar& of Ainan%e)" in %on=un%tion #ith the Commissioner of Internal Revenue" to promul'ate all needful rules and re'ulations for the effe%tive enfor%ement of internal revenue la#s %annot be %ontroverted. )either %an it be disputed that su%h rules and re'ulations" as #ell as administrative opinions and rulin's" ordinaril& should deserve #ei'ht and respe%t b& the %ourts. ,uc$ # re )un"a#en!al !$an ei!$er ) !$e ab ve, $ ;ever, is !$a! all suc$ issuances #us! n ! verri"e, bu! #us! re#ain c nsis!en! an" in $ar# n& ;i!$, !$e la; !$e& see/ ! appl& an" i#ple#en!. A"#inis!ra!ive rules an" re'ula!i ns are in!en"e" ! carr& u!, nei!$er ! supplan! n r ! # "i)&, !$e la; . EO A6 "i" n ! pr vi"e ) r !$e assess#en! #a"e pri r ! i!s pr #ul'a!i n in !$e e%clusi nar& clause" as CIR ar'ued. The %on%lusion is %lear" and it is that the exe%utive order has been desi'ned to be in the nature of a 'eneral 'rant of tax amnest& sub=e%t onl& to the %ases specifically ex%epted b& it. &ec. K. 4xceptions. % The following taxpa#ers !a# not avail the!selves of the a!nest# herein granted: a" Those falling under the provisions of 4xecutive 7rder 6os. !, $ and !K+ b" Those with income tax cases already filed in Court as of the effectivity hereof+ c" Those with criminal cases involving violations of the income tax already filed in court as of the effectivity filed in court as of the effectivity hereof+ d" Those that have withholding tax liabilities under the 6ational .nternal 3evenue Code,

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e"

f"

g"

as amended, insofar as the said liabilities are concerned+ Those with tax cases pending investigation by the Bureau of .nternal 3evenue as of the effectivity hereof as a result of information furnished under &ection I!F of the 6ational .nternal 3evenue Code, as amended+ Those with pending cases involving unexplained or unlawfully acDuired wealth before the &andiganbayan+ Those liable under Title &even, Chapter Three JFrauds, .llegal 4xactions and Transactions" and Chapter Four J8alversation of 9ublic Funds and 9roperty" of the 3evised 9enal Code, as amended.

Republic v Ca'ui a In :HH;" Con'ress RA N . >@@> or the 9A>?> C*)@?R>I*) A)4 4?@?F*PE?)T ACT *A :HH; #hi%h" amon' other thin's" %reated the >ubi% >pe%ial ?%onomi% and Areeport Tone (>>?T) and the >ubi% 9a& Eetropolitan Authorit& (>9EA). RA )o. B;;B provided in%entives su%h as tax and dut&.free importations of ra# materials" %apital and e-uipment. Do#ever" exportation from the >>?T to the other parts of the Philippine territor& shall be sub=e%t to %ustoms duties and taxes under the Customs and Tariff Code and other relevant tax la#s. It also provided that in lieu of pa&in' taxes" 33 of the 'ross in%ome earned b& all businesses and enterprises #ithin the >>?T shall be remitted to the )ational Jovernment" :3 ea%h to the lo%al 'overnment units affe%ted b& the de%laration of the 8one in proportion to their population area" and other fa%tors. In addition" it established a development fund of :3 of the 'ross in%ome earned b& all businesses and enterprises #ithin the >>?T to be utili8ed for the development of muni%ipalities outside the Cit& of *lon'apo and the Euni%ipalit& of >ubi%" and other muni%ipalities %onti'uous to be base areas. Pursuant to the la#" respondent %ompanies (Indi'o 4istribution" >tar Tradin'" et%) applied for and #ere 'ranted Certifi%ates of Re'istration and Tax ?xemption b& the >9EA. The Certifi%ate entitled them to tax and dut&.free importation of materials for use solel& #ithin the >ubi% 9a& Areeport Tone. Con'ress" ho#ever" subse-uentl& passed R.A. N . =::A #$% stated that !$e i#p r!a!i n ) ci'ars an" ci'are!!es, "is!ille" spiri!s, )er#en!e" li9u rs an" ;ines in! !$e P$ilippines, even i) "es!ine" ) r !a% an" "u!& )ree s$ ps, s$all be sub(ec! ! all applicable !a%es, "u!ies, c$ar'es, inclu"in' e%cise !a%es "ue !$ere n. This shall appl& to those brou'ht dire%tl& into the freeports of the >>?T" under RA )o. B;;B. 9e%ause of this" >9EA issued a Eemorandum dire%tin' the departments %on%erned to re-uire lo%ators$importers in the >9A to pa& the %orrespondin' duties and taxes on their importations of %i'ars" %i'arettes" li-uors" and #ines before said items are %leared and released from the freeport.

In line #$ this" the )IRC #as amended (>e% :3:0 #$% also provided that taxes and %har'es shall apply to the importation of %i'arettes" li-uor" #ine" et%. *n the basis of the said amendment" >9EA issued a Eemorandum de%larin' that all importations of %i'ars" %i'arettes" distilled spirits" fermented li-uors and #ines into the >9A shall be treated as ordinar& importations sub=e%t to all appli%able taxes" duties and %har'es" in%ludin' ex%ise taxes. Respondent %ompanies #rote to the Colle%tor of Customs and the >9EA Administrator re-uestin' for a re%onsideration of the dire%tives on the imposition of su%h. 4espite this" the& #ere not allo#ed to file an& #arehousin' entr& for their shipments. Thus" the& brou'ht the a%tion before the RTC" #$% ruled in their favour. I/ 0$n RA H33< effe%tivel& #ithdre# the tax exemption of respondent %ompanies. R/ C?>" the %ompanies are )*T exempt from tax. Alo#in' from the basi% pre%ept of %onstitutional la# that no la# is irrepealable" Con'ress" in the le'itimate exer%ise of its la#ma in' po#ers" %an ena%t a la# #ithdra#in' a tax exemption =ust as effi%a%iousl& as it ma& 'rant the same under >e%tion ;2(<) of Arti%le @I of the Constitution (There is no vested ri'ht in a tax exemption" more so #hen the latest expression of le'islative intent renders its %ontinuan%e doubtful.). TD5>" Con'ress %an amend >e%tion :3: of the )IRC in a manner it sees fit" as it did #hen it passed R.A. )o. H33<. T$e ri'$!s 'ran!e" un"er !$e Cer!i)ica!es ) Re'is!ra!i n an" Ta% E%e#p!i n ) priva!e resp n"en!s are n ! abs lu!e an" unc n"i!i nal as ! c ns!i!u!e ri'$!s in esse ( those %learl& founded on or 'ranted b& la# or is enfor%eable as a matter of la#. These %ertifi%ates 'rantin' private respondents a 6permit to operate7 their respe%tive businesses are in the nature of li%enses" #hi%h the bul of =urispruden%e %onsiders as neither a propert& nor a propert& ri'ht. The li%ensee ta es his li%ense sub=e%t to su%h %onditions as the 'rantor sees fit to impose" in%ludin' its revo%ation at pleasure. A li%ense %an thus be revo ed at an& time sin%e it does not %onfer an absolute ri'ht. 0hile the tax exemption %ontained in the Certifi%ates of Re'istration of private respondents ma& have been part of the indu%ement for %arr&in' on their businesses in the >9A" this exemption" nevertheless" is far from bein' %ontra%tual in nature in the sense that the non.impairment %lause of the Constitution %an ri'htl& be invo ed. Fastl&" #hatever ri'ht ma& have been a%-uired on the basis of the Certifi%ates of Re'istration and Tax ?xemption must &ield to the >tate1s valid exer%ise of poli%e po#er. The said la# #as passed to %urb the pra%ti%e of ta in' advanta'e of tax exemption privile'es to smu''le 'oods.

S#ar! C ##unica!i ns, Inc. v Ci!& ) Dava The Tax Code of the Cit& of 4avao imposes a tax on businesses en=o&in' a fran%hise in the amount of ^ of :3 of the 'ross annual re%eipts for the pre%edin' %alendar &ear. This is based on the in%ome $ re%eipts reali8ed #ithin its territorial =urisdi%tion" not#ithstandin' an& exemption 'ranted b& an& la# or other spe%ial la#. >EART filed for de%larator& relief" %ontendin' that/ o Its tele%enter in the aforementioned %it& #as exempted from pa&ment of su%h fran%hise taxes pursuant to its fran%hise under RA B;H<

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RA B:L0 (The Fo%al Jovernment Code) onl& applies to exemptions alread& existin' at the time of its effe%tivit& and )*T to future exemptions o The po#er of the Cit& of 4avao to impose a fran%hise tax is sub=e%t to statutor& limitations su%h as the 6 in lieu of all taxes 7 %lause found in >e%tion H of R.A. )o. B;H< o >u%h fran%hise tax imposed b& the Cit& of 4avao violates the %onstitutional provision a'ainst impairment of %ontra%ts. The Cit& of 4avao opposed" invo in' the po#er 'ranted b& the Constitution to lo%al 'overnment units to %reate their o#n sour%es of revenue. TC ruled a'ainst >mart" on the 'round that tax la#s are stri%tl& %onstrued a'ainst the taxpa&er" and that FJ5s are empo#ered to tax b& a valid dele'ation of le'islative po#er and the dire%t authorit& 'ranted to it b& the fundamental la#" hen%e not violative of the non.impairment %lause. I/ 0$n >EART is liable for fran%hise tax R/ C?>" >EART is liable. >e%tion :3B" in relation to >e%tion :5: of the Fo%al Jovernment Code (RA B:L0) allo#s lo%al 'overnments to impose fran%hise taxes" #hile >e%tion :H3 thereof #ithdre# all tax exemption privile'es 'ranted to fran%hises prior to its issuan%e" ex%ept lo%al #ater distri%ts" %ooperatives dul& re'istered under RA )o. LH32" non.sto% and non.profit hospitals and edu%ational institutions. >in%e >mart1s fran%hise (RA B;H<) #as 'ranted t#o months AAT?R the issuan%e of the Fo%al Jovernment Code" its tax exemption privile'es are )*T deemed #ithdra#n b& the Fo%al Jovernment Code. Do#ever" the phrase 6in lieu of all taxes7 in RA B;H< must be %onstrued in the %ontext of the #hole A%t 'rantin' the fran%hise to >mart. Tax statutes" and exemptions 'ranted therein" are %onstrued stri%tl& a'ainst the taxpa&er and liberall& in favor of the Jovernment. In this %ase" the 33 tax on all 'ross re%eipts 6in lieu of all taxes7 provision in RA B;H< #as )*T %lear #hether it applies to both national and lo%al taxes. Thus" this provision must be %onstrued stri%tl& a'ainst >mart #hi%h %laims the exemption. >mart has the burden of provin' that" aside from the imposed 33 fran%hise tax" Con'ress intended it to be exempt from all inds of fran%hise taxes . #hether lo%al or national. Do#ever" >mart failed in this re'ard. The #as also no violation of the non.impairment %lause of the Constitution. In fa%t" aside from the ambi'uous 6in lieu of all taxes7 phrase in the fran%hise" it also has an express %ondition that it is sub=e%t to amendment" alteration" or repeal. o

NATURE, CONSTRUCTION, APP.ICATION AND SOURCES OF TAX .A4S Hila" v CIR ?milio Dilado filed his in%ome tax return for :H5: #ith the treasurer of 9a%olod Cit& #herein he %laimed" amon' other thin's" the amount of P:; ! as a dedu%tible item from his 'ross in%ome pursuant to Jeneral Cir%ular @.:;3 issued b& the CIR. (This %ir%ular #as issued pursuant to %ertain rules laid do#n b& the >e%retar& of Ainan%e.) *n the basis of said return" an assessment noti%e demandin' the pa&ment of PH ! #as sent to Dilado" #ho paid the tax in monthl& installments. Eean#hile" the >e%retar& of Ainan%e" throu'h the CIR issued Jeneral Cir%ular @. :3H #hi%h not onl& revo ed and de%lared void his 'eneral Cir%ular @. :;3 but laid do#n the rule that losses of propert& #hi%h o%%urred durin' the period of 0orld 0ar II from fires" storms" ship#re% or other %asualt&" or from robber&" theft" or

embe88lement are dedu%tible in !$e &ear ) ac!ual l ss r "es!ruc!i n ) sai" pr per!&. As a %onse-uen%e" the amount of P:; ! #as disallo#ed as a dedu%tion from Dilado1s 'ross in%ome for :H5:. Conse-uentl&" the CIR demanded from him P3 ! as defi%ien%& in%ome tax for said &ear. 0hen the petition for re%onsideration filed b& Dilado #as denied" he filed a petition for revie# #$ CTA. CTA affirmed CIR1s assessment" so Dilado filed an appeal #$ the >C. I/ 0$n CIR1s assessment #as %orre%t R/ C?>" CIR #as %orre%t. :) Assumin' that the amount %laimed as a loss represents a portion of the B53 of his #ar dama'e %laim #hi%h #as not paid" the same #ould NOT be "e"uc!ible as a l ss in 6=L6 be%ause" a%%ordin' to Dilado" the last installment he re%eived from the 0ar 4ama'e Commission #as in 6=LB. Thus" dedu%tion %ould onl& be made from his :H50 'ross in%ome. Also" the amount %annot be %onsidered a 6business asset7 #hi%h %an be dedu%ted as a loss be%ause its %olle%tion is )*T enfor%eable as a matter of ri'ht" but is dependent merel& upon the 'enerosit& of the 5> 'overnment. ;) As of the end of :H<5" there #as absolutel& no la# under #hi%h Dilado %ould %laim %ompensation for the destru%tion of his properties durin' the battle for the liberation of the Philippines. 3) 5nder the Philippine Rehabilitation A%t of :H<L" the pa&ments of %laims b& the 0ar 4ama'e Commission merel& depended upon its dis%retion to be exer%ised in the manner it ma& see fit" but the non.pa&ment of #hi%h %annot 'ive rise to an& enfor%eable ri'ht. Also" the se%ond Jen %ir%ular" #$% nullified the first is %onsistent #$ the )IRC (>e%. 30)" #hi%h provides that that losses sustained are allo#able as dedu%tion onl& #ithin the %orrespondin' taxable &ear. <) Philippine internal revenue la#s are not politi%al in nature and as su%h #ere %ontinued in for%e durin' the period of enem& o%%upation and in effe%t #ere a%tuall& enfor%ed b& the o%%upation 'overnment. As a matter of fa%t" in%ome tax returns #ere filed durin' that period and in%ome tax pa&ment #ere effe%ted and %onsidered valid and le'al. >u%h tax la#s are deemed to be the la#s of the o%%upied territor& and not of the o%%up&in' enem&. 5) The >e%retar& of Ainan%e is vested #ith authorit& to revo e" repeal or abro'ate the a%ts or previous rulin's of his prede%essor in offi%e be%ause the %onstru%tion of a statute b& those administerin' it is )*T bindin' on their su%%essors. Thus" in the present %ase" #hen the Commissioner determined in :H3B that the petitioner #as not exempt and never had been" it #as his dut& to determine" assess and %olle%t the tax due for all &ears not barred b& the statutes of limitation. The %on%lusion rea%hed and announ%ed b& his prede%essor in :H;< #as )*T bindin' upon him. It did not exempt Dilado from tax. Jeneral Cir%ular @.:;3" havin' been issued on a #ron' %onstru%tion of the la#" %annot 'ive rise to a vested ri'ht that %an be invo ed b& a taxpa&er. A vested ri'ht %annot sprin' from a #ron' interpretation. CivCode also provides that 6no vested or a%-uired ri'ht %an arise from a%ts or omissions #hi%h are a'ainst the la# or #hi%h infrin'e upon the ri'hts of others.7

I,isa#is Orien!al Ass cia!i n ) C c Tra"ers v Depar!#en! ) Finance Secre!ar& ,isa#is Orien!al Ass cia!i n ) C c Tra"ers v. Dep!. ) Finance Secre!ar&

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The )IRC exempts from @AT the sale of a'ri%ultural non.food produ%ts in their ori'inal state if the sale is made b& the primar& produ%er or o#ner of the land from #hi%h the same are produ%ed. The sale made b& an& other person $ entit&" li e a trader or dealer" is )*T exempt from the tax. A revenue memorandum %ir%ular #as issued" re%lassif&in' C*PRA into an a'ri%ultural non.food produ%t. Eisamis *riental" #$% #as en'a'ed in the bu&in' and sellin' of %opra" %laimed that the memorandum %ir%ular #as dis%riminator& and violative of the e-ual prote%tion %lause be%ause #hile %o%onut farmers and %opra produ%ers are exempt" TRA4?R> and 4?AF?R> are )*T" althou'h both sell %opra in its ori'inal state. I/ 0$n there #as a violation of e-ual prote%tion. R/ )*" it #as not violative of ?PC The Constitution does not forbid the differential treatment of persons so lon' as there is a R?A>*)A9F? basis for %lassif&in' them differentl&. In this %ase" there is a material or substantial differen%e bet#een %o%onut farmers and %opra produ%ers" on the one hand" and %opra traders and dealers" on the other. The farmers$ produ%ers PR*45C? and >?FF %opra" #hile traders and dealers merel& >?FF %opra. The Constitution does not forbid the differential treatment of persons so lon' as there is a reasonable basis for %lassif&in' them differentl&.

CIR v CA an" A.AHA,-RA AFDAE9RA I)45>TRI?>" I)C. #as en'a'ed in the manufa%ture and sale of %i'ar and %i'arette produ%ts. CIR assessed it for defi%ien%& ad valorem tax on the removal of %i'arette produ%ts from their pla%e of produ%tion from )ov :HH0 to Kan :HH:. Alhambra filed a protest for the #ithdra#al and %an%ellation of proposed assessment. CIR denied its protest statin' that the de%ision #as final. Alhambra re-uested for a re%onsideration but #as also denied. It then paid under protest and filed a petition for revie# #ith the CTA. The dispute arose from the dis%repan%& in the taxable base on #hi%h the ex%ise tax is to appl& on a%%ount of t#o in%on'ruous 9IR Rulin's/ o 6H -IR Rulin' A>:3NN dated < Oc! ber 6=NN #hi%h ex%luded the @AT from the tax base in %omputin' the :53 ex%ise tax due o This #as issued b& the 4eput& Commissioners to Cebana Toba%%o Corporation allo#in' the said Corp to ex%lude @AT in the determination of the 'ross sellin' pri%e for purposes of %omputin' the ad valorem tax of its %i'ar and %i'arette produ%ts in a%%ordan%e #ith >e%. :;B of the Tax Code as amended b& ?*;B3 o ;) -IR Rulin' B6>3=6 dated :: Februar& 6==6 #hi%h in%luded ba% the @AT in %omputin' the tax base for :53 ad valorem tax. o CIR issued this rulin' to Insular.Cebana Toba%%o Corp. revo in' 9IR Rulin' <B3.22 for bein' violative of >e%.:<; of the Tax Code o This is the %orre%t interpretation sin%e se% :;B applies in J?)?RAF T* 4*E?>TIC PR*45CT> #hile se% :<; refers spe%ifi%all& to %i'ar and %i'arettes onl&. A%%ordin'l&" se% :<; must prevail over se%tion :;B #hi%h is a 'eneral provision of la# insofar as the imposition of the ad valorem tax on %i'ar and %i'arettes is %on%erned.

Alhambra relied on the :st 9IR Rulin' as a basis for %omputin' the amount of ad valorem tax. Do#ever" CIR sou'ht to appl& the revo%ation retroa%tivel& to Alhambra1s removals of %i'arettes for )ov :HH0 to Kan :HH: on the 'rounds that the : st 9IR Rulin' bein' an erroneous interpretation does )*T %onfer an& vested ri'ht as to exempt it from the retroa%tive appli%ation of ;nd Rulin'. ?ven if the :st rulin' is not erroneous Alhambra still a%ted in bad faith" #hi%h is an ex%eption to the rule on non.retroa%tivit& of 9IR Rulin's. Alhambra had no#led'e that >e%. :<; of the Tax Code #as the spe%ifi% provision appli%able to it" &et it applied >e% :;B. CTA ordered CIR to refund to Alhambra the erroneousl& paid ad valorem tax. CIR appealed to the CA but CA affirmed the CTA rulin'" holdin' that the retroa%tive appli%ation of 9IR Rulin' 0:B.H: CA))*T be allo#ed sin%e Alhabmra did )*T a%t in bad faith" nor #as it motivated b& fraud. I/ 0$n Alhambra1s relian%e on a void 9IR rulin' %onferred upon it a vested ri'ht to appl& the same in the %omputation of its ad valorem tax and %laim for tax refund. R/ C?>. CIR must refund Alhambra. >e%. ;<L of the Tax Code provides that rulin's #ill )*T have a retroa%tive effe%t if it #ould be pre=udi%ial to taxpa&ers. The onl& ex%eptions are/ o A) #here the taxpa&er deliberatel& omits material fa%ts from his return or an& do%ument re-uired b& the 9IR o -H #here the fa%ts subse-uentl& 'athered b& the 9IR are materiall& different from the fa%ts on #hi%h the rulin' is based or o C) #here the taxpa&er a%ted in bad faith In this %ase" there #as )* %onvin%in' eviden%e that Alhambra1s implementation of the %omputation mandated b& 9IR Rulin' <B3.22 #as ill.motivated or attended #ith a dishonest purpose. In fa%t" as a si'n of 'ood faith" Alhambra immediatel& reverted to the %omputation mandated b& 9IR Rulin' 0:B.H: upon no#led'e of its issuan%e on :: Aebruar& :HH:. Also" the failure of Alhambra to %onsult 9IR does not impl& bad faith on the part of the former. ICIR v .in'a&en Gul) Fin'a&en Julf" an ele%tri% po#er plant operator" #as the 'rantee of a muni%ipal fran%hise to suppl& ele%tri%it& in Pan'asinan. It #as sub=e%t to a ;3 fran%hise tax under the muni%ipal fran%hise. The CIR assessed Fin'a&en a defi%ien%& fran%hise tax" %omputed at 53" based on the rate pres%ribed b& the )IRC" instead of the lo#er rates as provided in the muni%ipal fran%hises. Fin'a&en re-uested for a reinvesti'ation 'iven that instead of in%urrin' a defi%ien%& liabilit&" it made an overpa&ment of the fran%hise tax. This #as denied b& the CIR so Fin'a&en appealed to the CTA. In the meantime" RA 32<3 #as passed 'rantin' Fin'a&en a le'islative fran%hise to suppl& ele%tri% %urrent to the publi%" sub=e%t to ;3 fran%hise tax. The CIR %laimed that the la# #as un%onstitutional for bein' violative of the uniformit& and e-ualit& of taxation %lause of the Constitution sin%e other similar fran%hises #ere sub=e%t to a 53 fran%hise tax imposed b& the Tax Code. CTA dismissed CIR1s %laim and ruled that the provisions of RA 32<3 should appl&. I/ 0$n RA 32<3 violates the rule on uniformit& and e-ualit& of taxation R/ )o.

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A tax is uniform #hen it operates #ith the same for%e and effe%t in ever& pla%e #here the sub=e%t of it is found. 5niformit& means that all propert& belon'in' to the same %lass shall be taxed ali e. The Fe'islature has the inherent po#er not onl& to sele%t the sub=e%ts of taxation but to 'rant exemptions. TAG ?G?EPTI*)> have never been deemed violative of the e-ual prote%tion %lause. In this %ase" althou'h Fin'a&en1s muni%ipal fran%hises #ere obtained under A%t )o. LLB of the Philippine Commission" these ori'inal fran%hises have been repla%ed b& a ne# le'islative fran%hise" RA 32<3. Fin'a&en1s po#er plant falls #ithin the %lass of po#er plants %reated b& A%t )o. 3L3L" as amended b& C.A. )o. :3; and RA 32<3. RA 32<3 merel& transferred the petitionerRs po#er plant from that %lass provided for in A%t )o. LLB" until the approval of RA 32<3. Thus" the la# merel& transferred Fin'a&en1s po#er plant from its former %lass to #hi%h it belon'ed. All po#er plants belon'in' to this parti%ular %lass #ere sub=e%t to the same ;3 tax and therefore" the rule on uniformit& #as not violated.

A-S3C-N -r a"cas!in' C rp v CTA A9>.C9) #as en'a'ed in the business of tele%astin' lo%al and forei'n films a%-uired from forei'n %orporations not en'a'ed in trade or business #ithin the Philippines. Aor these" A9> paid rentals after #ithholdin' in%ome tax of 303of M of the film rentals. In so far as the in%ome tax on non.resident %orporations is %on%erned" se%tion ;< (b) of the )IRC" amended b& RA ;3<3 (Kune ;0" :H5H) used to provide that for forei'n %orporations" a tax of 303 on sour%es of in%ome shall be %olle%ted in lieu of other taxes (rents" salaries" #a'es" dividends" et%.) To implement this" the CIR issued Jeneral Cir%ular )o. @.33< #$% provided that the lo%al distributor should #ithhold :BG ) O ) !$e )il# ren!als pai" ! !$e n n3resi"en! ) rei'n )il# "is!ribu! r and pa& the same to this offi%e in a%%ordan%e #ith la# unless the non. resident forei'n film distributor ma es a prior settlement of its in%ome tax liabilit&. Pursuant to this" A9> dutifull& #ithheld and turned over to the 9IR the amount of 303 of M of the film rentals paid b& it to forei'n %orporations until :HL2. >ubse-uentl&" the CIR issued Revenue Eemorandum Cir%ular )o. <.B:" revo in' Jeneral Cir%ular )o. @.33<" and holdin' that the Jen Cir% #as Oerroneous for la% of le'al basis"O be%ause Othe tax therein pres%ribed should be based on 'ross in%ome #ithout dedu%tion #hatever"O providin' that lo%al films distributors and exhibitors shall dedu%t and #ithhold ILQ of TH4 46T.34 )87=6T pa&able b& them to non.resident forei'n %orporations. CIR issued a'ainst A9> a letter of assessment re-uirin' them to pa& defi%ien%& #ithholdin' in%ome tax on the remitted film rentals for the &ears 6=7L !$r u'$ 6=7N an" )il# r &al!& as ) !$e en" ) 6=7N in the total amount of about P5;5 ! A9> re-uested for a re%onsideration and #ithdra#al of the assessment. Do#ever" CIR issued a #arrant of distraint and lev& over A9>R personal as #ell as real properties. A9> filed a Petition for Revie# #ith the CTA" CTA dismissed.

I/ 0$n CIR %an appl& Jeneral Cir%ular )o. <.B: retroa%tivel& and issue a defi%ien%& assessment a'ainst petitioner in the amount of P 5;5 ! as defi%ien%& #ithholdin' in%ome tax for the &ears :HL5 to :HL2. R/ )*. >C ruled in favour of A9>. The Tax Code" #$ the insertion of RA L::0 provides that an& revo%ation" modifi%ation" or reversal of and of the rules and re'ulations promul'ated b& the CIR shall not &e given retroactive application if the relocation$ !odification$ or reversal will &e pre+udicial to the taxpa#ers . The onl& ex%eptions are/ o a) #here the taxpa&er deliberatel& omits material fa%ts from his return or an& do%ument re-uired of him b& 9IR o b) #here the fa%ts subse-uentl& 'athered b& 9IR are materiall& different from the fa%ts on #hi%h the rulin' is based o %) axpa&er a%ted in bad faith It is %lear from the fore'oin' that rulin's or %ir%ulars promul'ated b& the Commissioner of Internal Revenue have no retroa%tive appli%ation #here to so appl& them #ould be pre=udi%ial to taxpa&ers. The pre=udi%e to petitioner of the retroa%tive appli%ation of Eemorandum Cir%ular )o. <.B: is be&ond -uestion. It #as issued onl& in :HB:" or three &ears after :HL2" the last &ear that petitioner had #ithheld taxes under Jeneral Cir%ular )o. @.33<. The assessment and demand on petitioner to pa& defi%ien%& #ithholdin' in%ome tax #as also made three &ears after :HL2 for a period of time %ommen%in' in :HL5. A9> #as no lon'er in a position to #ithhold taxes due from forei'n %orporations be%ause it had alread& remitted all film rentals and no lon'er had an& %ontrol over them #hen the ne# Cir%ular #as issued. A9> also does not fall #$in an& of the enumerated ex%eptions. )*T?/ CIR %laims" ho#ever" that the provision on non.retroa%tivit& is inappli%able in the present %ase in that Jeneral Cir%ular )o. @.33< is a nullit& be%ause in effe%t" it %han'ed the la# on the matter. CTA #as thus %orre%t in %on%ludin' that A9> did not a%-uire an& vested ri'ht thereunder as the same #as a nullit&.

P$ilippine -an/ ) C ##unica!i ns v CIR Philippine 9an of Communi%ations (P9Com) filed its -uarterl& in%ome tax returns for the first and se%ond -uarters of :H25" reported profits" and paid the total in%ome tax of P5E!. The taxes due #ere settled b& appl&in' P9ComRs tax %redit memos and a%%ordin'l&" the 9IR issued Tax 4ebit Eemo for P3E! and P:E!" respe%tivel&. >ubse-uentl&" ho#ever" P9Com suffered losses so that #hen it filed its Annual In%ome Tax Returns for the &ear.ended 4e%ember 3:" :H2L" it reported a net loss of P:<E! and thus de%lared no tax pa&able for the &ear. 9ut durin' these t#o &ears (:H25 and :H2L)" P9Com earned rental in%ome from leased properties. The lessees #ithheld and remitted to the 9IR #ithholdin' %reditable taxes for both :H2L and :H2L (about P;00 ! for ea%h of those &ears). P9Com then re-uested the CIR" amon' others" for a tax %redit of P5E! representin' the overpa&ment of taxes in the first and se%ond -uarters of :H25. 3 &rs later" P9Com filed a %laim for refund of %reditable taxes #ithheld b& their lessees from propert& rentals in :H25 and :H2L (the P;00 ! ea%h)

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Pendin' CIR1s investi'ation" P9Com instituted a Petition for Revie# before the CTA. CTA denied the re-uest for a tax refund or %redit (P5E!) 'iven that it #as filed be&ond the ;.&ear re'lementar& period provided for b& la#. The petitionerRs %laim for refund in :H2L #as li e#ise denied on the assumption that it #as automati%all& %redited b& P9Com a'ainst its tax pa&ment in the su%%eedin' &ear. P9Com ar'ued that its %laims for refund and tax %redits are not &et barred b& pres%ription rel&in' on the appli%abilit& of Revenue Eemorandum Cir%ular )o. B. 25 issued on April :" :H25. The RE Cir%ular states that overpaid in%ome taxes are )*T %overed b& the t#o. &ear pres%riptive period under the Tax Code and that taxpa&ers ma& %laim refund or tax %redits for the ex%ess -uarterl& in%ome tax #ith the 9IR #ithin ten :0 &ears under Arti%le ::<< of the Civil Code. I/ 0$n the tax refund should be denied on the 'round of pres%ription" despite P9Com1s relian%e on REC )o. B.25" %han'in' the pres%riptive period of ; &ears to :0 &ears. R/ )o. The relaxation of revenue re'ulations b& REC B.25 is not #arranted as it disre'ards the t#o.&ear pres%riptive period set b& la#. The )IRC states that the taxpa&er ma& file a %laim for refund or %redit #ith the CIR #$in ; &ears after pa&ment of tax" before an& suit in CTA is %ommen%ed. The ;.&ear pres%riptive period should be %omputed from the time of filin' the Ad=ustment Return and final pa&ment of the tax for the &ear. Clearl&" the pres%riptive period of ; &ears should %ommen%e to run onl& from the time that the refund is as%ertained" #hi%h %an onl& be determined after a final ad=ustment return is a%%omplished. 0hen the A%tin' CIR issued REC B.25" %han'in' the pres%riptive period of ; &ears to :0 &ears on %laims of ex%ess -uarterl& in%ome tax pa&ments" su%h %ir%ular %reated a %lear in%onsisten%& #ith the provision of the )IRC. In so doin'" the 9IR did not simpl& interpret the la#, rather it le'islated 'uidelines %ontrar& to the statute passed b& Con'ress. Rules and re'ulations issued b& administrative offi%ials to implement a la# %annot 'o be&ond the terms and provisions of the latter. Art. 2 of the Civil Code re%o'ni8es =udi%ial de%isions" appl&in' or interpretin' statutes as part of the le'al s&stem of the %ountr&. 9ut administrative de%isions do not en=o& that level of re%o'nition. A memorandum.%ir%ular of a bureau head %ould not operate to vest a taxpa&er #ith shield a'ainst =udi%ial a%tion. Aor there are no vested ri'hts to spea of respe%tin' a #ron' %onstru%tion of the la# b& the administrative offi%ials and su%h #ron' interpretation %ould not pla%e the Jovernment in estoppel to %orre%t or overrule the same. Eoreover" the non.retroa%tivit& of rulin's b& the CIR is not appli%able in this %ase be%ause the nullit& of REC )o. B.25 #as de%lared b& respondent %ourts and not b& the CIR. Fastl&" a %laim for refund is in the nature of a %laim for exemption and should be %onstrued in stri%tissimi =uris a'ainst the taxpa&er.

CERTAIN DOCTRINES IN TAXATION PO4ER TO TAX IN1O.1ES PO4ER TO DESTROC

CIR v T /& S$ippin' C , .!". To &o >hippin' is a forei'n %orporation (represented b& >oriamont >teamship A'en%ies in the Philippines) #hi%h o#ns and operates tramper vessel E$@ Jardenia. In 4e%ember :H20" )A>5TRA %hartered E$@ Jardenia to load :L"500 metri% tons of ra# su'ar in the Philippines. Er. ?dilberto Fisin'" the operations supervisor of >oriamont A'en%&" paid the re-uired in%ome and %ommon %arrierRs taxes totallin' about P:0B ! based on the expe%ted 'ross re%eipts of the vessel. 5pon arrivin'" ho#ever" at Juimaras Port of Iloilo" the vessel found no su'ar for loadin'. )A>5TRA and >oriamont mutuall& a'reed to have the vessel sail for Kapan #ithout an& %ar'o. Claimin' the pre.pa&ment of in%ome and %ommon %arrierRs taxes as erroneous sin%e no re%eipt #as reali8ed from the %harter a'reement" To &o >hippin' instituted a %laim for tax %redit or refund of P:0B ! before CIR. CIR failed to a%t promptl& on the %laim" so To &o filed a petition for revie# before CTA. CTA ruled in favour of To &o. CIR filed a petition %ontendin' that To &o had the burden of proof to support its %laim of refund" To &o failed to prove that it did not reali8e an& re%eipt from its %harter a'reement and it suppressed eviden%e #hen it did not present its %harter a'reement. I/ 0$n To &o is entitled to a refund or tax %redit for amounts representin' pre. pa&ment of in%ome and %ommon %arrierRs taxes under the )IRC R/ C?>. CTA de%ision affirmed. >e%;< (b;) of the )IRC provides that a %orporation or'ani8ed under forei'n la# but doin' business in the Phils shall be taxable upon the total net in%ome derived in the pre%edin' taxable &ear from all sour%es #ithin the Philippines" PR*@I4?4 that international %arriers shall pa& a !a% ) @ 6+@G n !$eir 'r ss P$ilippine billin's. (O<ross 9hilippine Billings> include gross revenue reali(ed from uplifts anywhere in the world by any international carrier doing business in the 9hilippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the 9hilippines. The gross revenue reali(ed from the said cargo or mail include the gross freight charge up to final destination.) Pursuant to this" a resident forei'n %orporation en'a'ed in the transport of %ar'o is liable for taxes dependin' on the amount of in%ome it derives from sour%es #ithin the Philippines. TD5>" before su%h a tax liabilit& %an be enfor%ed" the taxpa&er must be sho#n to have earned in%ome sour%ed from the Philippines. A %laim for refund is in the nature of a %laim for exemption and should be %onstrued in strictissimi ,uris a'ainst the taxpa&er. The taxpa&er has the burden of proof to sho# that he is entitled to refund. I) TDI> CA>?" there #as suffi%ient eviden%e sho#n b& To &o that it derived no re%eipt from its %harter a'reement #ith )A>5TRA.. 4o%uments presented #ere the Clearan%e @essel to a Aorei'n Port issued b& the 4istri%t Colle%tor of Customs" Port of Iloilo and the Certifi%ation b& the *ffi%er. in.Char'e" ?xport 4ivision of the 9ureau of Customs Iloilo. The %orre%tness of the %ontents of these do%uments re'ularl& issued b& offi%ials of the 9ureau of Customs %annot be doubted as indeed" the& have not been %ontested b& the petitioner.

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Taxpa&ers o#e honest& to 'overnment =ust as 'overnment o#es fairness to taxpa&ers. The %ourt be#ails the un&ieldin' stan%e ta en b& the 'overnment in refusin' to refund the sum of P:0B":<;.B5 erroneousl& prepaid b& private respondent. T$e ' vern#en! "ela&e" i!s re)un" ) r 6L &ears an" !$us ren"ere" !$e re)un" (us! ; r!$ a "a#a'e" nic/el . This is not the ind of su%%ess the 'overnment" espe%iall& the 9IR" needs to in%rease its %olle%tion of taxes. Aair deal is expe%ted b& our taxpa&ers from the 9IR and the dut& demands that 9IR should refund #ithout an& unreasonable dela& #hat it has erroneousl& %olle%ted. In 3oxas v. CT), the po#er of taxation is sometimes %alled also the po#er to destro&. Therefore it should be exer%ised #ith %aution to minimi8e in=ur& to the proprietar& ri'hts of a taxpa&er. It must be exer%ised fairl&" e-uall& and uniforml&" lest the tax %olle%tor ill the Ohen that la&s the 'olden e''.O And" in order to maintain the 'eneral publi%Rs trust and %onfiden%e in the Jovernment this po#er must be used =ustl& and not trea%herousl&.

Re&es v Al#an* r K9F" ?dmundo and Eila'ros Re&es are o#ners of par%els of land in Eanila #hi%h are leased and o%%upied as d#ellin' sites b& tenants for monthl& rentals not ex%eedin' P300. In :HB:" RA L35H #as passed prohibitin' an in%rease of monthl& rentals of d#ellin' units or of land on #hi%h another d#ellin' is lo%ated for one &ear after effe%tivit& for rentals not ex%eedin' P300 but allo#in' an in%rease of rent thereafter b& not more than :03. The A%t also suspended the operation of Arti%le :LB3 of the Civil Code (e=e%tment of lessess). P4 ;0 amended RA L35H b& absolutel& prohibitin' the in%rease and indefinitel& suspendin' Arti%le :LB3. The Re&eses" thus" #ere pre%luded from raisin' the rentals and from e=e%tin' the tenants. In :HB3" the Cit& Assessor of Eanila re%lassified and reassessed the value of the properties based on the s%hedule of mar et values dul& revie#ed b& the >e%retar& of Ainan%e. As it entailed an in%rease of the %orrespondin' tax rates" the Re&eses filed a memorandum of disa'reement #ith the 9oard of Tax Assessment Appeals and averrin' that the reassessments #ere ex%essive" un#arranted" une-uitable" %onfis%ator& and un%onstitutional inasmu%h as the taxes imposed ex%eeded the annual in%ome derived from their properties. The& also ar'ued that the 6in%ome approa%h7 should have been used in determinin' land values instead of the 6%omparative sales approa%h7 #hi%h the assessor adopted. I/ 0$n the assessment of the 9oard #as proper R/ )*. >C ruled in favor of Re&eses and board #as as esd to ma e re. assessment. Taxation is e-uitable #hen its burden falls on those better able to pa&. Taxation is pro'ressive #hen its rate 'oes up depenfin' on the resour%es of the person affe%ted. Taxes are uniform #hen all taxable arti%les or inds of propert& of the same %lass are taxed at the same rate. The taxin' po#er has the authorit& to ma e reasonable and natural %lassifi%ation for purposes of taxation. Fa#s should operate e-uall& and uniforml&" ho#ever" on all persons under similar %ir%umstan%es.

5nder the Real Propert& Tax Code (P4 <L<)" propert& must be appraised at its %urrent and fair mar et value. The mar et value of the properties %overed b& P4 ;0" thus %annot be e-uated #ith the mar et value of properties not so %overed. The propert& %overed b& P4 ;0 has naturall& a mu%h lesser mar et value in vie# of the rental restri%tions. The fa%tors determinant of the assessed value of the properties under the 6%omparable sales approa%h7 #ere not presented b& the 9oard$Assessors/ :) that the sale must represent a bonafide armRs len'th transa%tion bet#een a #illin' seller and a #illin' bu&er ;) the propert& must be %omparable propert&. )othin' %an =ustif& their vie# as it is of =udi%ial noti%e that for properties %overed b& P.4. ;0 espe%iall& durin' the time in -uestion" there #ere hardl& an& #illin' bu&ers. As a 'eneral rule" there #ere no ta ers so that there %an be no reasonable basis for the %on%lusion that these properties #ere %omparable #ith other residential properties not burdened b& P.4. ;0. Also" althou'h taxes are the lifeblood of the 'overnment and should be %olle%ted #ithout unne%essar& hindran%e" su%h %olle%tion should be made in a%%ordan%e #ith la# as an& arbitrariness #ill ne'ate the ver& reason for 'overnment itself. In this %ase" sin%e the Re&eses are burdened b& the Rent Aree8e Fa#s (RA L35H and P4 ;0)" the& should not be penali8ed b& the same 'overnment b& the imposition of ex%essive taxes the& %annot ill afford and #ould eventuall& result in the forfeiture of their properties" under the prin%iple of so%ial =usti%e.

IC ##issi ner ) In!ernal Revenue v. Al'ue The Phil. >u'ar ?state 4evelopment Compan& (P>?4C) appointed Al'ue" In%." a famil& %orporation" as its a'ent" authori8in' it to sell its land" fa%tories" and oil manufa%turin' pro%ess. Pursuant to this authorit&" five members of the famil& %orporation formed the @e'etable *il Investment Corp. and indu%ed other persons to invest in it. The ne#l& formed %orporation then pur%hased the P>?4C properties. Aor this sale" P>?4C 'ave Al'ue" In%. a %ommission of P:;5"000. Arom this amount" Al'ue In%. paid the five famil& members PB5"000 as promotional fees. Al'ue" In%. de%lared this PB5"000 as a dedu%tion from its in%ome tax as a le'itimate business expense. The CIR -uestioned the dedu%tion" %laimin' that it #as not an ordinar&" reasonable" or ne%essar& expense and #as merel& an attempt to evade pa&ment of taxes. I/ 0$n the PB5"000 is tax.dedu%tible as a le'itimate business expense of Al'ue" In%. R/ Ces" the PB5"000 promotional fee is tax.dedu%tible. >e%. 30 of the Tax Code provides that ordinar& and ne%essar& expenses in%urred durin' the taxable &ear in %arr&in' on an& trade or business" in%ludin' a reasonable allo#an%e for salaries or other %ompensation for personal servi%es a%tuall& rendered are tax.dedu%tible. Do#ever" the burden in provin' the validit& of a %laimed dedu%tion belon's to the taxpa&er. In this %ase" the burden has been satisfa%toril& dis%har'ed b& the taxpa&er Al'ue" In%. Al'ue" In%. #as able to prove that the promotional fees #ere not fi%titious and #ere in fa%t paid periodi%all& to the five famil& members. Eoreover" the amount of the promotional fees #as reasonable" %onsiderin' that the five pa&ees a%tuall&

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performed a servi%e for Al'ue" In%. b& ma in' the sale of the properties of P>?4C possible. As a result of this sale" Al'ue" In%. earned a net %ommission of P50"000. Taxes are #hat #e pa& for %ivili8ed so%iet&. 0ithout taxes" the 'overnment #ould be paral&8ed for la% of the motive po#er to a%tivate and operate it. Den%e" despite the natural relu%tan%e to surrender part of one1s hard.earned in%ome" ever& person #ho is able to must %ontribute his share in runnin' the 'overnment. The 'overnment" for its part" is expe%ted to respond in the form of 9?)?AIT> for 'eneral #elfare. This s&#bi !ic rela!i ns$ip is !$e ra!i nale ) !a%a!i n and should dispel the erroneous notion that it is an arbitrar& exa%tion b& those in the seat of po#er. Do#ever" it should also be exer%ised reasonabl& and in a%%ordan%e #ith the pres%ribed pro%edure. If it is not" the taxpa&er has a ri'ht to %omplain to the %ourts.

SET3OFF OF TAXES P$ile% ,inin' C rp v CIR 9IR sent a letter to Philex as in' it to settle its tax liabilities for :HH: to :HH; . Philex protested that it has pendin' %laims for @AT input %redit$refund for the taxes it paid for :H2H and that the refund should be applied a'ainst the tax liabilities. 9IR replied that the pendin' %laims have )*T &et been established so it follo#s that no le'al %ompensation %an ta e pla%e" hen%e" the reiteration of the demand for pa&ment. Philex raised the issue to the CTA. Pendin' pro%eedin' in CTA" 9IR issued a Tax Credit Certifi%ate :3E #hi%h" #hen applied to the total tax liabilities of Philex of P:;3E effe%tivel& lo#ered the PhilexRs tax obli'ation. 4espite the redu%tion" CTA denied Philex1s petition for revie# and still ordered Philex to pa& the remainin' balan%e of P::0E plus interest" sa&in' that for le'al %ompensation to ta e pla%e" both obli'ations must be liDuidated and demandable. The liDuidated debt of the Philex to the 'overnment %annot" therefore" be set.off a'ainst the unliDuidated claim #hi%h Philex %on%eived to exist in its favour. It also invo ed the prin%iple that Otaxes %annot be sub=e%t to set.off on %ompensation sin%e %laim for taxes is not a debt or %ontra%t.O Philex appealed to the CA" #hi%h denied su%h appeal and its ER. A fe# da&s after the denial of ER" Philex obtained its @AT input %redit$refund not onl& for :H2H to :HH: but also for :HH; and :HH<. TD5>" Philex %ontended that the same should off.set its ex%ise tax liabilities sin%e both had alread& be%ome Odue and demandable" as #ell as full& li-uidated7 and le'al %ompensation %an properl& ta e pla%e. I/ :) 0$n le'al %ompensation bet#een the @AT input %redit$refund and tax liabilit& %ould ta e pla%e. )* ;) 0$n the imposition of interest and sur%har'e is un=ustified ( )*" it is =ustified 3) 0$n 9IR violated >e%tion :0L of the )IRC #hen it 'ave the refunds onl& in :HHL ( C?> R/

:) Ta%es cann ! be sub(ec! ! c #pensa!i n . Jovernment and the taxpa&er are not %reditors and debtors of ea%h other. 4ebts are due to the Jovernment in its %orporate %apa%it&" #hile taxes are due to the Jovernment in its soverei'n %apa%it&. )ational Revenue Code of :H3H provided for offsettin' but su%h provision #as dropped in the )IRC of :HHB. ;) I#p si!i n ) surc$ar'es an" in!eres!s are (us!i)ie". T he lo'i% of su%h imposition is the prin%iple that taxes are the lifeblood of the 'overnment and so should be %olle%ted #ithout unne%essar& hindran%e. Tax is that it is %ompulsor& and does not depend upon the %onsent of the taxpa&er. Tax Code of :HBB/ The pa&ment of the sur%har'e is mandator& and the 9IR is not vested #ith an& authorit& to #aive the %olle%tion thereof. :H -IR, $ ;ever, vi la!e" Sec!i n 6B7 ) !$e NIRC. 9IR violated the )IRC" #hi%h re-uires the refund of input taxes #ithin L0 da&s" #hen it too them 5 C?AR> to 'rant Philex1 tax %laim for @AT input %redit$refund. *n%e the %laimant has submitted all the re-uired do%uments it is the fun%tion of the 9IR to assess these do%uments #ith purposeful dispat%h. After all" sin%e taxpa&ers o#e honestl& to 'overnment it is but =ust that 'overnment render fair servi%e to the taxpa&ers. The po#er of taxation is sometimes %alled also the po#er to destro&. Therefore it should be exer%ised #ith %aution to minimi8e in=ur& to the proprietar& ri'hts of a taxpa&er. 95T althou'h it is admission of the lethar'i% manner b& #hi%h the 9IR handled PhilexRs tax %laim" the >tate is not bound b& the ne'le%t of its a'ents and offi%ers.

Francia v IAC ?n'ra%io Aran%ia #as the re'istered o#ner of a residential lot and a ;.stor& house in Pasa& Cit&. >ubse-uentl&" a :;5.s-m portion of Aran%ia1s propert& #as expropriated b& the Republi% of the Philippines for the sum of P< ! representin' the estimated amount e-uivalent to the assessed value of the aforesaid portion. This #as be%ause of Aran%ia1s failure to pa& taxes for :< &ears. The propert& #as then sold at publi% au%tion pursuant to >e%tion B3 of P4 <L< no#n as the Real Propert& Tax Code. Aernande8 #as the hi'hest bidder for the propert&. Aran%ia #as not present durin' the au%tion sale sin%e he #as in Ili'an Cit& at that time helpin' his un%le ship bananas. Aran%ia then re%eived a noti%e of hearin' of an FRC Case" #here Aernande8 sou'ht to %an%el Aran%ia1s TCT and issue a ne# one in his name. Aran%ia thus filed a %omplaint to annul the au%tion sale" alle'in' that/ o his tax liabilit& should have been offset #ith the mone& paid to him b& the 'overnment #hen the& expropriated his other propert& o De #as not dul& notified of the au%tion sale o the pri%e at #hi%h his propert& #as sold #as 'rossl& inade-uate #ith that of the propert&1s a%tual value (6sho% in' to the senses7) Fo#er %ourt and IAC dismissed the %omplaint. I/ 0$n the au%tion #as valid R/ C?>" it #as valid 9& le'al %ompensation" obli'ations of persons" #ho in their o#n ri'ht are re%ipro%all& debtors and %reditors of ea%h other" are extin'uished (Art. :;B2" Civil Code).

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The %ir%umstan%es of the %ase do not satisf& the re-uirements provided b& Arti%le :;BHU o (:) that ea%h one of the obli'ors be bound prin%ipall& and that he be at the same time a prin%ipal %reditor of the other..xxx o (3) that the t#o debts be due. There %an be no off.settin' of taxes a'ainst the %laims that the taxpa&er ma& have a'ainst the 'overnment. A person %annot refuse to pa& a tax on the 'round that the 'overnment o#es him an amount e-ual to or 'reater than the tax bein' %olle%ted. The %olle%tion of a tax %annot a#ait the results of a la#suit a'ainst the 'overnment. The 'overnment and taxpa&er are )*T mutuall& %reditors and debtors of ea%h other. In this %ase" the tax #as due to the %it& 'overnment #hile the expropriation #as effe%ted b& the national 'overnment. Eoreover" the amount of P< ! paid b& the national 'overnment for the lot #as deposited #$ the P)9 F*)J 9?A*R? the au%tion of the remainin' propert&. *TD?R>/ Aran%ia %annot den& re%eivin' noti%e of the sale be%ause he I) AACT admitted in his testimon& that he re%eived a letter re'ardin' the sale" and it #as ne'li'en%e on his part #hen he i'nored su%h noti%e, As a 'eneral rule" 'ross inade-ua%& of pri%e is not material #hen the la# 'ives the o#ner the ri'ht to redeem as #hen a sale is made at publi% au%tion" upon the theor& that the lesser the pri%e" the easier it is for the o#ner to effe%t redemption.

#hether the area %overed b& his li%ense is reforested or not. >aid fund" as the la# expressl& provides" shall be expended in %arr&in' out the purposes provided for thereunder" namel&" the reforestation or afforestation" amon' others" of denuded areas needin' reforestation or afforestation. ;) 5nder Arti%le :;B2" )CC" %ompensation should ta e pla%e #hen t#o persons are CR?4IT*R> and 4?9T*R> of ea%h other. In this %ase" RP and the Compan& are )*T mutual %reditors and debtors of ea%h other. >aid amount are in the %offers of the 'overnment as tax %olle%ted. >in%e the& are not mutuall& %reditors and debtors of ea%h other. Conse-uentl&" the la# on %ompensation is inappli%able. A %laim for taxes is )*T a debt" demand" %ontra%t or =ud'ment as is allo#ed to be set.off under the statutes of set.off" #hi%h are %onstrued uniforml&" in the li'ht of publi% poli%&" to ex%lude the remed& in an a%tion or an& indebtedness of the state or muni%ipalit& to one #ho is liable to the state or muni%ipalit& for taxes. The 'eneral rule" based on 'rounds of publi% poli%& is #ell.settled that no set.off is admissible a'ainst demands for taxes levied for 'eneral or lo%al 'overnmental purposes. 0h&] Taxes are )*T in the nature of %ontra%ts bet#een the part& and part& but 'ro# out of a dut& to" and are the positive a%ts of the 'overnment. Ea in' and enfor%in' them does )*T re-uire C*)>?)T of taxpa&ers.

Republic ) !$e P$ils v ,a#bula .u#ber C Eambulao Fumber Compan& o#ed the Republi% of the Philippines a total sum of about P< ! (plus L3 le'al interest from the date of the filin' of the %omplaint) for forest %har'es %overin' the period from >eptember :0" :H5; to Ea& ;<" :H53. The liabilit& #as %overed b& a bond exe%uted b& Jeneral Insuran%e W >uret& Corporation for the Compan& in favor of the Republi%. The Compan& did not disput that it did have liabilities totalin' about PA/P. D*0?@?R" as a defense" it also %laimed to have paid to the RP P=/P ) r Dre) res!a!i n c$ar'esE from Kul& :H<2 to 4e%ember :H5L and April :H<B to Kune :H<2. These #ere paid in pursuan%e of RA ::5 #$% provides that there shall be %olle%ted" in addition to the re'ular forest %har'es provided under the )IRC" the amount of LB cen!s on ea%h %ubi% meter of timber %ut out and removed from an& publi% forest for %ommer%ial purposes. (purpose/ reforestation of #ater sheds" denuded areas" et%.) The Compan& %ontended that sin%e the Republi% had not made use of those reforestation %har'es %olle%ted" Republi% should refund them" so it re-uested a refund from the 4ire%tor of Aorestr& (that the amt be %redited #$ reforestation %har'es imposed on them) so that the amount if paid %ould be set.off I/ 0$n the PH ! paid b& the Compan& as reforestation %har'es ma& be >?T *AA #ith the P< ! forest %har'es due them R/ )*" the& %annot be set.off. :) There is nothin' in the la# #hi%h re-uires that the amount %olle%ted as reforestation %har'es should be used exclusively for the reforestation of the area covered by the license of a li%ensee or %on%essionaire" and that if not so used" the same should be refunded to him. The amount paid b& a li%ensee as reforestation %har'es is in the nature of a tax #hi%h forms a part of the Reforestation Aund" pa&able b& him irrespe%tive of

TAXPACER SUIT An!i3Gra)! .ea'ue ) !$e P$ils v San <uan President Ear%os issued P4 )o. LB<" establishin' the Te%hnolo'i%al Colle'es of Ri8al. The P4" amon' others" dire%ted the 9oard to provide funds for the pur%hase of a site and the %onstru%tion of the ne%essar& stru%tures thereon. A%tin' upon an authorit& 'ranted b& the offi%e of the President" the Provin%e #as able to ne'otiate #ith *rti'as W Co." Ftd. (*rti'as) for the a%-uisition of < par%els of land in 5'on' )orte" Pasi'. The pro=e%ted %onstru%tion" ho#ever" never materiali8ed be%ause of the de%imation of the Provin%eRs resour%es brou'ht about b& the %reation of the Eetro Eanila Commission (EEC) in :HBL. :; &rs later" #ith the propert& l&in' idle and the Provin%e needin' funds to propel its 5.&ears Comprehensive 4evelopment Pro'ram" the then in%umbent 9oard passed Resolution )o. 2B.;05 authori8in' the Jovernor to sell the same. The said propert& #as eventuall& sold to @alle& @ie# Realt& 4evelopment Corporation (@alle& @ie#) for P:35E!" #here P30E #as 'iven as do#npa&ment. 9e%ause of this" *rti'as filed a %ase of res%ission a'ainst the Provin%e be%ause the Provin%e violated the provisions of their %ontra%t #hi%h #as that the land #ould be used for the %onstru%tion of the Ri8al Te%hnolo'i%al Colle'es and Ri8al Provin%ial Dospital. )e# offi%ials then assumed offi%e and the 9oard adopted Resolution )o. 22.L5 #hi%h provided for the res%ission of the deed of sale bet#een the Provin%e and @alle& @ie# on the 'round that the sale pri%e #as ex%eedin'l& lo# and" thus" pre=udi%ial to the Provin%e. 9e%ause of this" @alle& @ie# then filed a %omplaint a'ainst the Provin%e for spe%ifi% performan%e and dama'es. (There are no# t#o %ases a'ainst the board/

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spe%ifi% performan%e and dama'es b& @alle& @ie# and res%ission of %ontra%t b& *rti'as) The %ases a'ainst the Provin%e #as resolved b& enterin' into %ompromise a'reements. 0ith @alle& @ie#" the Provin%e a'reed to return the 30E do#npa&ment. 0ith *rti'as" the Provin%e a'reed to re%onve& the < par%els of land to *rti'as for at P@,@LB + s9#. This amount is hi'her than the mar et values separatel& determined b& Asian Appraisal" In%. and the Provin%ial Appraisal Committee #hi%h respe%tivel& pe''ed the pri%e of the sub=e%t properties at P6,NBB an" P@,@BB+s9#. The Anti.Jraft Fea'ue filed a petition to nullif& the a'reement as taxpa&ers #ith le'al standin'. I/ 0$n this #as a taxpa&erRs suit $ 4oes petitioner possess the le'al standin' to -uestion the transa%tion entered into b& the Provin%ial 9oard of Ri8al #ith private respondent *rti'as] R/ )*" )*T A TAGPAC?R >5IT A)4 )* F?JAF >TA)4I)J. To %onstitute a taxpa&erRs suit" t#o re-uisites must be met/ o :) that publi% funds are disbursed b& a politi%al subdivision or instrumentalit& and in doin' so" a la# is violated or some irre'ularit& is %ommitted" and o ;) petitioner is dire%tl& affe%ted b& the alle'ed ultra vires a%t. In this %ase" disbursement of publi% funds #as onl& made in :HB5 #hen the Provin%e bou'ht the lands from *rti'as at P::0 per s-uare meter in line #ith the ob=e%tives of P.4. LB<. The AJF never referred to su%h pur%hase as an ille'al disbursement of publi% funds but fo%used on the alle'ed fraudulent re%onve&an%e of said propert& to *rti'as be%ause the pri%e paid #as lo#er than the prevailin' mar et value of nei'hborin' lots. The first re-uirement" therefore" #hi%h #ould ma e this petition a taxpa&erRs suit is absent. As to the ;nd 'round (#$n petitioner is dire%tl& affe%ted)" undeniabl&" as a taxpa&er" AJF #ould someho# be adversel& affe%ted b& an ille'al use of publi% mone&. 0hen" ho#ever" no su%h unla#ful spendin' has been sho#n" as in the %ase at bar" AJF" even as a taxpa&er" %annot -uestion the transa%tion validl& exe%uted b& and bet#een the Provin%e and *rti'as for the simple reason that it is not priv& to said %ontra%t. In other #ords" AJF has absolutel& no %ause of a%tion" and %onse-uentl& no locus standi" in the instant %ase. The -uestion in standin' is #hether su%h parties have Oalle'ed su%h a personal sta e in the out%ome of the %ontrovers& as to assure that %on%rete adverseness #hi%h sharpens the presentation of issues upon #hi%h the %ourt so lar'el& depends for illumination of diffi%ult %onstitutional -uestions.

< &a v Presi"en!ial C ##issi n n G " G vern#en! Eateo A.T. Caparas" then Chairman of PCJJ" #rote then President Cora8on C. A-uino" re-uestin' her for authorit& to si'n the proposed Consi'nment A'reement bet#een the Republi% of the Philippines throu'h PCJJ and ChristieRs of )e# Cor . President A-uino" throu'h former ?xe%utive >e%retar& Catalino Ea%arai'" Kr." authori8ed PCJJ Chairman to si'n the Consi'nment A'reement allo#in' ChristieRs of )e# Cor to au%tion off the 2; *ld Easters Paintin's and anti-ue silver#are sei8ed from Eala%a_an' and the Eetropolitan Euseum of Eanila

alle'ed to be part of the ill.'otten #ealth of the late President Ear%os" his relatives and %ronies. Petitioners Ko&a" et%. filed a petition for Eandamus #ith Pra&er for Preliminar& In=un%tion and$or Restrainin' *rder to en=oin PCJJ from pro%eedin' #ith the au%tion sale. After the oral ar'uments" the >C issued a resolution den&in' the appli%ation for preliminar& in=un%tion. The sale pushed throu'h and the X:3E! pro%eeds #ere turned over to the 9ureau of Treasur&. Petitioners %laim that as Ailipino %iti8ens" taxpa&ers and artists deepl& %on%erned #ith the preservation and prote%tion of the %ountr&Rs artisti% #ealth" the& have the le'al personalit& to restrain respondents from a%tin' %ontrar& to their publi% dut& to %onserve the artisti% %reations as mandated b& the :H2B Constitution and R.A. <2<L $ The Cultural Properties Preservation and Prote%tion A%t. The& also an%hor their %ase on the premise that the paintin's and silver#are are publi% properties %olle%tivel& o#ned b& them and b& the people in 'eneral to vie# and en=o& as 'reat #or s of art. The& alle'e that #ith the unauthori8ed a%t of PCJJ in sellin' the art pie%es" petitioners have been deprived of their ri'ht to publi% propert& #ithout due pro%ess of la# in violation of the Constitution. I/ 0$n petitioners had le'al standin' to file the petition R/ )*" the& did not. OFe'al standin'O means a personal and substantial interest in the %ase su%h that the part& has sustained or #ill sustain dire%t in=ur& as a result of the 'overnmental a%t that is bein' %hallen'ed. The term OinterestO is material interest" an interest in issue and to be affe%ted b& the de%ree" as distin'uished from mere interest in the -uestion involved" or a mere in%idental interest. Eoreover" the interest of the part& plaintiff must be personal and not one based on a desire to vindi%ate the %onstitutional ri'ht of some third and related part&. There are %ertain instan%es ho#ever #hen this Court has allo#ed ex%eptions to the rule on le'al standin'" as #hen a %iti8en brin's a %ase for mandamus to pro%ure the enfor%ement of a publi% dut& for the fulfillment of a publi% ri'ht re%o'ni8ed b& the Constitution" and #hen a taxpa&er -uestions the validit& of a 'overnmental a%t authori8in' the disbursement of publi% funds. ,anda!us -uit: Althou'h a%tion is also one of mandamus filed b& %on%erned %iti8ens" it does not fulfill the %riteria for a mandamus suit. A #rit of mandamus ma& be issued to a %iti8en onl& #hen the publi% ri'ht to be enfor%ed and the %on%omitant dut& of the state are une-uivo%abl& set forth in the Constitution. In this %ase" petitioners are not after the fulfillment of a positive dut& re-uired of respondent offi%ials under the :H2B Constitution. 0hat the& see is the en=oinin' of an offi%ial a%t be%ause it is %onstitutionall& infirm. Also" the %laim for the %ontinued en=o&ment and appre%iation b& the publi% of the art#or s is at most a PRI@IF?J? and )*T a %onsti ri'ht. Taxpa#er.s -uit: A taxpa&erRs suit %an prosper onl& if the 'overnmental a%ts bein' -uestioned involve disbursement of publi% funds upon the theor& that the expenditure of publi% funds b& an offi%er is EI>APPFI?4" #hi%h ma& be en=oined at the re-uest of a taxpa&er. *bviousl&" petitioners are not %hallen'in' an& expenditure involvin' publi% funds but the disposition of #hat the& alle'e to be publi% properties.

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Petitioners even admit that the paintin's and anti-ue silver#are #ere a%-uired from private sour%es and not #ith publi% mone&.

. *a"a v CO,E.EC A petition for mandamus #as filed b& Kose Eari Fo8ada and Romeo I'ot as a representative suit for and in behalf of those #ho #anted to parti%ipate in the ele%tion irrespe%tive of part& affiliation. The& filed the petition to %ompel the respondent C*E?F?C to %all a spe%ial ele%tion to fill up existin' va%an%ies numberin' t#elve (:;) in !$e In!eri# -a!asan' Pa#bansa. The petition is based n Sec!i n LJ@H, Ar!icle 1III ) !$e 6=>: C ns!i!u!i n #$% provides that #hen a vacancy arises in the J3egular" Batasang 9ambansa !P months or more before a regular election, the C784'4C shall call a special election to be held w;in FA days after the vacancy occurs to elect the 8ember to serve the unexpired term. Fo8ada %laimed that he is a taxpa&er and a bonafide ele%tor of Cebu Cit& and a transient voter of Iue8on Cit&" Eetro Eanila" #ho desires to run for the position in the 9atasan Pambansa. I'ot alle'es that" as a taxpa&er" he has standin' to petition b& mandamus the %allin' of a spe%ial ele%tion as mandated b& the :HB3 Constitution. C*E?F?C opposed the petition alle'in'" substantiall&" that :) petitioners la% standin' to file the instant petition for the& are not the proper parties to institute the a%tion, ;) the Court has no =urisdi%tion to entertain this petition, and 3) >e%tion 5(;)" Arti%le @III of the :HB3 Constitution does not appl& to the Interim 9atasan Pambansa. I/ 0$n pe!i!i ners as !a%pa&ers an" v !ers #a& )ile !$is ins!an! pe!i!i n. Q NOR 0*) EA)4AE5> ma& be filed #ith re'ard to the appropriation of publi% fund. ( )* R/ :) As taxpa&ers" petitioners ma& not file the instant petition" for no#here therein is it alle'ed that tax mone& is bein' ille'all& spent. The a%t %omplained of is the ina%tion of the C*E?F?C to %all a spe%ial ele%tion" as is alle'edl& its ministerial dut& under the %onstitutional provision above %ited" and therefore" involves no expenditure of publi% funds. It is onl& #hen an a%t %omplained of" #hi%h ma& in%lude a le'islative ena%tment or statute" involves the ille'al expenditure of publi% mone& that the so.%alled taxpa&er suit ma& be allo#ed. 0hat the %ase at bar see s is one that entails expenditure of publi% funds #hi%h EAC 9? ille'al be%ause it #ould be spent for a purpose that of %allin' a spe%ial ele%tion has no authorit& either in the Constitution or a statute. ;) As voters" neither have petitioners the re-uisite interest or personalit& to -ualif& them to maintain and prose%ute the present petition. The un%hallen'ed rule is that the person #ho impu'ns the validit& of a statute must have a personal and substantial interest in the %ase su%h that he has sustained" or #ill sustain" dire%t in=ur& as a result of its enfor%ement. In this %ase" the alle'ed ina%tion of the C*E?F?C to %all a spe%ial ele%tion to fill. up the existin' va%an%ies in the 9atasan Pambansa" standin' alone" #ould adversel& affe%t onl& the 'enerali8ed interest of all %iti8ens. 3) It is obvious that the holdin' of spe%ial ele%tions in several re'ional distri%ts

#here va%an%ies exist" #ould entail hu'e expenditure of mone&. *nl& the 9atasan Pambansa %an ma e the ne%essar& appropriation for the purpose" and this po#er of the 9atasan Pambansa ma& neither be sub=e%t to mandamus b& the %ourts mu%h less ma& C*E?F?C %ompel the 9atasan to exer%ise its po#er of appropriation. Arom the role 9atasan Pambansa has to pla& in the holdin' of spe%ial ele%tions" #hi%h is to appropriate the funds for the expenses thereof" it #ould seem that the initiative on the matter must %ome from said bod&" not the C*E?F?C" even #hen the va%an%ies #ould o%%ur in the re'ular not interim 9atasan Pambansa. The po#er to appropriate is the sole and ex%lusive prero'ative of the le'islative bod&" the exer%ise of #hi%h ma& not be %ompelled throu'h a petition for mandamus *TD?R/ >e%tion 5(;)" Arti%le @III of the :HB3 Constitution refers to the re'ular 9atasan' Pambansa (9P) and not the interim 9P. Therefore" their %laim to hold spe%ial ele%tions to fill in the va%an%ies in the interim 9P #ill fail for there is no basis for su%h in the Transitor& Provisions of the Constitution 'overnin' pro%edures in the interim 9P.

INCO,E TAX A. IN GENERA. ,a"ri'al v Ra))er!& @i%ente Eadri'al and >usana Paterno #ere married prior to Kanuar& :" :H:<. The marria'e #as %onta%ted under the provisions of la# %on%ernin' %on=u'al partnerships. *n Aebruar& :H:5" @i%ente Eadri'al filed a s#orn de%laration #$ the CIR sho#in' that his total net in%ome for the &ear :H:< is P;HL . >ubse-uentl&" Eadri'al submitted the %laim that the P;HL did )*T represent his in%ome for :H:<" 95T it #as in fa%t the in%ome of the %on=u'al partnership" and that in %omputin' and assessin' the additional in%ome tax provided for b& the A%t of Con'ress of *%t. 3" :H:3" the in%ome de%lared should be divided/ M from Eadri'al and M from Paterno. This -uestion #as submitted to the Att&. Jeneral" #ho in an opinion ruled in favour of Eadri'al. The revenue offi%ers #ere still unsatisfied" so the& for#arded this opinion to 0ashin'ton for a de%ision b& the 5> Treasur& 4ept. The 5> CIR reversed the opinion of the Att&. Jeneral. Eadri'al paid under protest" then he filed an a%tion in CAI Eanila a'ainst CIR and 4eput& CIR for re%over& of P3.B . alle'ed to have been #ron'full& and ille'all& assessed and %olle%ted b& the CIR" under the In%ome Tax Fa#. CIR ar'ued that the taxes imposed b& the In%ome Tax Fa# are taxes upon I)C*E? and )*T upon %apital and propert&. The fa%t that Eadri'al1s marria'e #as under %on=u'al partnership has no bearin' on in%ome %onsidered as in%ome. The answer of the defendants sets forth the basis of defendantsO stand in the following way The income of 8adrigal and 9aterno for the year !E!K was made up of I items !. IF$k S profits made by 8adrigal in coal and shipping business $. Kk S profits made by 9aterno in her embroidery business I. !Fk S profits made by 8adrigal in pawnshop business K. <ross income J9IPIk" 8.6=& general deductions J9PFk"? 6et income J9$EFk" I/ 0$) the additional in%ome tax should be divided into ; e-ual parts be%ause of the %on=u'al partnership existin' bet#een them. ()*

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9JR*5)4/ In%ome tax la# of 5> extended to Phils #as for the purpose of miti'atin' the evils arisin' from ine-ualities of #ealth throu'h a pro'ressive s%heme of taxation" #$% pla%es a burden on those #ho are able to pa&. In%ome tax is supposed to rea%h the earnin's of the entire non.'overnmental propert& of the %ountr&. In%ome as %ontrasted #ith %apital or propert& is to be the test. The essential differen%e bet#een %apital and in%ome is that capi!al is a FUND, inc #e is a F.O4. CAPITA. is a fund of propert& existin' at an instant of time . INCO,E is a flo# of servi%es rendered b& that %apital b& the pa&ment of mone& from it or an& other benefit rendered b& a fund of %apital in relation to su%h fund throu'h a period of time. CAPITA. is #ealth" #hile INCO,E is servi%e of #ealth. >C of Jeor'ia/ 6The fa%t that propert& is a tree" in%ome is the fruit, labor is a tree" in%ome is a fruit, %apital is a tree" in%ome is a fruit. A tax on in%ome is not a tax on propert&. In%ome" as here used %an be defined as PR*AIT> or JAI)>. In this %ase" >usana Paterno has an in%hoate ri'ht in the propert& of her husband durin' the life of the %on=u'al partnership. >he has an interest in the ultimate propert& ri'hts and in the o#nership of propert& a%-uired as in%ome AAT?R >5CD I)C*E? DA> 9?C*E? CAPITAF. >he has )* A9>*F5T? RIJDT to *)?.DAFA TD? I)C*E? of the %on=u'al partnership. As she has no estate and in%ome a%tuall& and le'all& vested in her and entirel& distin%t from her husband1s propert&" the in%ome CA))*T properl& be %onsidered >?PARAT? I)C*E? of the #ife for the purposes of additional tax. Eoreover" the In%ome Tax Fa# does not loo on the spouses as individual partners in an ordinar& partnership. The husband and #ife are onl& entitled to the exemption of 2 " 'ranted b& la#. The hi'her s%hedules of the additional tax dire%ted at in%omes of the #ealth& ma& not be partiall& defeated b& relian%e on the provisions in our Civil Code dealin' #ith the %on=u'al partnership and havin' no appli%ation to the In%ome Tax Fa#. The aims and purposes of the In%ome Tax Fa# must be 'iven effe%t. The onl& o%%asion for a #ife ma in' a return is #here she has in%ome from a sole and separate estate in ex%ess of X3"000" but to'ether the& have an in%ome in ex%ess of X<"000" in #hi%h the latter event either the husband or #ife ma& ma e the return but not both. In all instan%es the in%ome of husband and #ife #hether from separate estates or not" is ta en as a 0D*F? for the purpose of the )*REAF TAG. 0here the #ife has in%ome from a separate estate ma es return made b& her husband" #hile the in%omes are added to'ether for the purpose of the normal tax the& are ta en >?PARAT?FC for the purpose of the additional tax. In this %ase" ho#ever" the #ife has no separate in%ome #ithin the %ontemplation of the In%ome Tax Fa#.

Fis$er v Trini"a" The Philippine Ameri%an 4ru' Compan& (PA4C) #as a %orporation dul& or'ani8ed and existin' under Phil la# and Aisher #as a sto% holder in the %oproration. PA4C" as result of the business for that &ear" de%lared a Osto% dividend.O The proportionate share of the said sto% divided of the Aisher as P;<"200" su%h amount bein' issued to Aisher. Fater on" Aisher" upon demand of the CIR" paid under protest the sum of about P22H as in%ome tax on the said sto% dividend.

CIR demurred to the petition upon the 'round that it did not state fa%ts suffi%ient to %onstitute %ause of a%tion. The demurrer #as sustained" so Aisher appealed. Aisher %ited 5> >C de%isions to sustain his %laim #here in ea%h of the %ases" an effort #as made to %olle%t an Oin%ome taxO upon Osto% dividendsO and it #as held that Osto% dividendsO #ere CAPITAF and )*T in%ome and therefore )*T sub=e%t to the Oin%ome taxO la#. CIR ar'ued that althou'h in ?isner v Ea%omber" a Osto% dividend is )*T in%ome"O said A%t )o. ;233" in imposin' the tax on the sto% dividend" does not violate the provisions of the Kones Fa#" and that 5> statutes providin' for tax on sto% dividends are diff from Phil statutes. In the 5> (Chapter <L3" A%t of Con'ress)" the term OdividendsO pertains to an& distribution made $ ordered to be made b& a %orporation.. sto% dividend shall be %onsidered in%ome" to the amount of its %ash value. In the Phils" A%t )o. ;233" the term OdividendsO pertains to an& distribution made $ ordered to be made b& a %orporation" . . . out of its earnin's or profits a%%rued sin%e Ear%h :" :H:3 and pa&able to its shareholders" #hether in %ash or in sto% of the %orporation" . . . . >to% dividend shall be %onsidered in%ome" to the amount of the earnin's or profits distributed. I/ 0$n Osto% dividendsO are Oin%omeO and taxable under the provisions of A%t ;233 R/ )*" the& are not. In this %ase" >C first determined the definition of 6sto% dividends.7 >to% dividends represent undistributed in%rease in the %apital of %orporations$ entities for a parti%ular period. The& are used to sho# the in%reased interest or proportional shares in the %apital of ea%h sto% holder. In other #ords" the inventor& of the propert& of the %orporation" et%." for parti%ular period sho#s an in%rease in its %apital" so that the sto% theretofore issued does )*T sho# the real value of the sto% holderRs interest" and additional sto% is issued sho#in' the in%rease in the a%tual %apital" or propert&" or assets of the %orporation" et%. 9la% 1s Fa#/ An in%ome is the return in mone& from oneRs business" labor" or %apital invested, 'ains" profit or private revenue. Kusti%e Du'hes of 5> >C defined in%ome as %ash $ its e-uivalent. IT 4*?> )*T mean %hoses in a%tion$ unreali8ed in%rements in the value of the propert& The sto% holder #ho re%eives a sto% dividend has re%eived nothin' but a representation of his in%reased interest in the %apital of the %orporation" but AFF TD? PR*P?RTC $ CAPITAF of the %orp >TIFF 9?F*)J> to the %orp. There has been no separation of the interest of the sto% holder from the 'eneral %apital of the %orporation. Thus" a cer!i)ica!e ) s! c/ represen!e" b& !$e s! c/ "ivi"en" is si#pl& a s!a!e#en! ) $is pr p r!i nal in!eres! r par!icipa!i n in !$e capi!al ) !$e c rp ra!i n. The Fe'islature" #hen it provided for an Oin%ome tax"O intended to tax onl& the Oin%omeO of %orporations" firms or individuals" as that term is 'enerall& used in its %ommon a%%eptation. The& 4I4 )*T intend that at a mere in%rease in the value of the %apital or assets of a %orporation" firm" or individual" should be taxed as Oin%ome.O >u%h propert& %an be rea%hed under the ordinar& from of taxation. There is a 4I>TI)CTI*) bet#een an e%!ra r"inar& cas$ "ivi"en"" no matter #hen earned" and s! c/ "ivi"en"s de%lared. ?C4 is a disbursement to the sto% holder of a%%umulated earnin's" and the %orp parts #$ AF I)T?R?>T on it.

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>4" on the other hand" involves )* disbursement and parts #$ )*TDI)J. The sto% holder re%eives )*T an a%tual dividend but %ertifi%ate of sto% #hi%h simpl& eviden%es his interest in the entire %apital" in%ludin' su%h as b& investment of a%%umulated profits has been added to the ori'inal %apital. The& are not in%ome to him" but represent additions to the sour%e of his in%ome" namel&" his invested %apital. 5ntil the dividend is de%lared and paid" the %orporate profits still belon' to the %orporation" not to the sto% holders" and are liable for %orporate indebtedness Kusti%e 0il in/ OA dividend is a %orporate profit set aside" de%lared" and ordered b& the dire%tors to be paid to the sto% holders on demand or at a fixed time. 5ntil the dividend is de%lared" these %orporate profits belon' to the %orporation" )*T to the sto% holders" and are liable for %orporate indebtedness. A %areful readin' of ACT ;233 #ill sho# that" #hile it permitted a tax upon in%ome" the same provided that inc #e s$all inclu"e 'ains, pr )i!s, an" inc #e "erive" )r # salaries, ;a'es, r c #pensa!i n ) r pers nal services, as ;ell as )r # in!eres!, ren!, "ivi"en"s, securi!ies, e!c . Thus" in%ome re%eived as dividends I> taxable as an in%ome but an in%ome from OdividendsO is a ver& different thin' from re%eipt of a Osto% dividend.O I)C*E? AR*E 4I@I4?)4> is the a%tual re%eipt of profits #hile >T*CQ 4I@I4?)4 is the a re%eipt of a representation of the in%reased value of the assets of %orporation.

.i#pan Inves!#en! C rp v CIR Fimpan Investment Corporation (Fimpan) #as a domesti% %orporation dul& re'istered sin%e :H55. It #as en'a'ed in the business of leasin' real properties. It prin%ipal sto% holders #ere the spouses Fim (Isabelo and Purifi%a%ion)" #ho o#ned and %ontrolled HH3 of its total paid.up %apital. Isabelo Fim #as also the president and %hairman of the board. Fimpan1s real properties %onsisted of several lots and buildin's" mostl& situated in Eanila and in Pasa& Cit&" a%-uired from Isabelo and his mother. Fimpan dul& filed its :H5L and :H5B in%ome tax returns" reportin' therein net in%omes of about P3 ! and P:: ! respe%tivel&" for #hi%h it paid the %orrespondin' taxes for su%h. Fater on" the 9IR %ondu%ted an investi'ation of the said in%ome tax returns and dis%overed that Fimpan had underde%lared its rental in%omes b& P;0 and P2: durin' the said &ears" and had %laimed ex%essive depre%iation of its buildin's in the sums of P< ! and P:L ! %overin' the same period. CIR thus issued its letter.assessment and demand for pa&ment of defi%ien%& in%ome tax and sur%har'e a'ainst Fimpan" in the amount of P30 !. Fimpan as ed CIR for re%onsideration of the assessment" but CIR denied. Fimpan filed its petition for revie# before the CTA. 4urin' the trial" it %ame out that Fimpan had unde%lared more than M of the amount (P:;":00.00 out of P;0":HH.00) found b& the 9IR examiners as unreported rental in%ome for the &ear :H5L and more than :$3 of the amount (P;H"350.00 out of P2:"LH0.00)

as%ertained b& the same examiners as unreported rental in%ome for the &ear :H5B durin' the trial. Thus" CTA upheld CIR1s assessment. I/ 0$n CTA #as %orre%t in holdin' that Fimpan had unreported rental in%omes for the &ears :H5L and :H5B R/ C?>. Fimpan admitted throu'h its o#n #itness (>e%retar&.Treasurer >olis) that it had unde%lared more than one.half M of the amount found b& 9IR examiners and more than :$3 as%ertained b& the same examiners as unreported rental in%ome for the &ear :H5B" %ontrar& to its ori'inal %laim to the revenue authorities. TD5>" it had the burden to of establishin' %lear and %onvin%in' eviden%e to the %ontrar&" #$% it failed to do. The ex%use that Isabelo and his mother retained o#nership of the lands and onl& later transferred the o#nership to Fimpan to =ustif& the alle'ed verbal a'reement #hereb& the& #ould turn over to Fimpan L3 of the value of its properties to be applied to the rentals of the land and in ex%han'e for #hatever rentals the& ma& %olle%t from the tenants #ho refused to re%o'ni8e the ne# o#ner or vendee of the buildin's" is not onl& unusual but un%orroborated b& the alle'ed transferors" or b& an& do%ument or unbiased eviden%e. Fimpan1s denial and explanation of the non.re%eipt of the remainin' unreported in%ome for :H5B is not substantiated b& satisfa%tor& %orroboration. AF>*" Isabelo #as not presented as #itness nor #as his :H5B personal in%ome tax return submitted in %ourt to establish that the rental in%ome #hi%h he alle'edl& %olle%ted and re%eived in :H5B #ere reported therein. The #ithdra#al in :H52 of the deposits in %ourt pertainin' to the :H5B rental in%ome is no suffi%ient =ustifi%ation for the non.de%laration of said in%ome in :H5B" sin%e the deposit #as resorted to due to the refusal of Fimpan to a%%ept the same" and #as not the fault of its tenants, hen%e" Fimpan is deemed to have %onstru%tivel& re%eived su%h rentals in :H5B. The pa&ment b& the sub.tenant in :H5B should have been reported as rental in%ome in said &ear" sin%e it is in%ome =ust the same re'ardless of its sour%e. 4epre%iation is a -uestion of fa%t and is not measured b& theoreti%al &ardsti% " but should be determined b& a %onsideration of a%tual fa%ts. Aindin's of the CTA should not be disturbed.

C n;i v CTA Petitioners Con#i" et%. #ere Ailipino %iti8ens and emplo&ees of Pro%ter and Jamble (PWJ)" Philippine Eanufa%turin' Corporation #hi%h is a subsidiar& of PWJ" Cin%innati" *hio. In the &ear :HB0 and :HB:" the& #ere assi'ned" for %ertain periods" to other subsidiaries of PWJ outside of the Philippines and #ere earnin' 5> dollars. 0hen the& filed their in%ome tax returns" the& %omputed their tax due b& appl&in' the dollar.peso %onversion rates on the basis of the floatin' rate ordained b& the -IR rulin' N . >B3@>. The said rulin' states that/ o AR*E Kan..Aeb. :HB0 the %onversion rate is P3.H0 o AR*E Aeb..4e%. :HB0 the %onversion rate is PL.;5 Petitioners from the se%ond %ase also filed usin' the same %onversion rate but amended their in%ome tax returns in :HB3 and used the par value of the peso as pres%ribed in >e%tion <2 of RA ;L5 in relation to CA LHH.

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The said %omputation resulted in the alle'ed overpa&ments and their %laim for refund. Petitioners filed petition for revie# before the CTA. CTA held that the proper %onversion rate for the purpose of reportin' and pa&in' the Philippine in%ome tax on the dollar earnin's of the petitioners are the rates pres%ribed under Revenue ,e# ran"u# Circulars N s. >3>6 an" A63>6J)ree #ar/e! ra!e ) c nversi nH. Thus" their %laims #ere denied. I/ 0$n petitioners are entitled to refund R/ )*" the& are not. Petitioners are %orre%t as to their %laim that their dollar earnin's are not re%eipts derived from forei'n ex%han'e transa%tions be%ause forei'n ex%han'e transa%tions refer to those transa%tions #here there is %onversion of an amount of mone& or %urren%& of one %ountr& into an e-uivalent amount of mone& or %urren%& of another. The& #ere earnin' in their assi'ned nation1s %urren%& and also spendin' in said %urren%&" and thus" there #as no forei'n ex%han'e involved. Thus" the Commissioner erred in %on%ludin' that their in%ome taxes fell under Central 9an Cir%ular )o. <;. Join' to the issue of #hat rate of ex%han'e shall be used" the petitioners %ontended that sin%e their in%omes are not in the form of forei'n ex%han'e transa%tions, that there are no a%tual in#ard remittan%es" the& are not in%luded in the %overa'e of C9 Cir%ular )o. ;2H #hi%h provides for spe%ifi% instan%es #hen the par value of the peso shall )*T be the %onversion rate used and thus" the& %laim that the par value of the Philippine peso should be used. D*0?@?R" >C a'reed #$ Commissioner1s ar'ument that the said C9 Cir%ular spea s of receip!s ) ) rei'n e%c$an'e r ) rei'n b rr ;in's an" inves!#en!s, bu! NOT inc #e !a%. Thus" he had to use the prevailin' free mar et rate of ex%han'e in these %ases be%ause of the need to as%ertain the true and %orre%t amount of in%ome in Philippine peso of dollar earners. The in%ome of the petitioners" as Ailipino %iti8ens temporaril& residin' abroad" is still sub=e%t to in%ome tax as stated in >e%. ;: of the )IRC. To implement su%h" >e%. 332 of the )IRC empo#ers the >e%retar& of Ainan%e to 6promul'ate all needful rules and re'ulations7 to effe%tivel& enfor%e its provisions. Thus" Revenue Eemorandum Cir%. )os. B.B: and <:.B: #ere promul'ated to pres%ribe a uniform rate of ex%han'e from 5> dollars to Philippine pesos for I)T?R)AF R?@?)5? TAG P5RP*>?> for the &ears :HB0 and :HB:" respe%tivel&. These %ir%ulars #ere validl& promul'ated and are presumed to be valid until revo ed b& the >e%retar& of Ainan%e himself. Thus" the petitioners #ere %orre%tl& taxed b& the Commissioner. >in%e the& have alread& paid their :HB0 and :HB: in%ome taxes under the uniform rate of ex%han'e pres%ribed b& the said %ir%ulars" there is no reason for the Commissioner to refund them of an& taxes. )*T?/ In%ome + an amount of mone& %omin' to a person or %orporation #ithin a spe%ified time" #hether as pa&ment for servi%es" interest or profit from investment, %ash or its e-uivalent, a flo# of the fruits of one1s labor General Principles SEC. @:. /eneral rinciples of Inco!e Taxation in the hilippines. ( ?x%ept #hen other#ise provided in this Code/

(A) A %iti8en of the Philippines residin' therein is taxable on all inc #e derived from sour%es #ithin and #ithout the Philippines, (9) A nonresident %iti8en is taxable onl& on inc #e "erive" )r # s urces ;i!$in !$e P$ilippines, (C) An individual %iti8en of the Philippines #ho is #or in' and derivin' in%ome from abroad as an overseas %ontra%t #or er is taxable onl& on in%ome derived from sour%es #ithin the Philippines/ 9rovided, That a seaman #ho is a %iti8en of the Philippines and #ho re%eives %ompensation for servi%es rendered abroad as a member of the %omplement of a vessel en'a'ed ex%lusivel& in international trade shall be treated as an overseas %ontra%t #or er, (4) An alien individual" #hether a resident or not of the Philippines" is taxable onl& on in%ome derived from sour%es #ithin the Philippines, (?) A domesti% %orporation is taxable on all in%ome derived from sour%es #ithin and #ithout the Philippines, and (A) A forei'n %orporation" #hether en'a'ed or not in trade or business in the Philippines" is taxable onl& on in%ome derived from sour%es #ithin the Philippines. C. Inc #e !a% n in"ivi"uals

De)ini!i ns Resident citi0ens and resident aliens >e% ;; (A) The term 1resident alien1 means an individual #hose residen%e is #ithin the Philippines and #ho is not a %iti8en thereof. Garris n v CA Petitioners Jarrison" et% . #ere 5> %iti8ens emplo&ed in the 5> )aval 9ase in *lon'apo. The& re%eived separate noti%es from Fadislao Airma%ion" 4istri%t Revenue *ffi%er stationed at *lon'apo Cit&" informin' them that the& had not filed their respe%tive in%ome tax returns for the &ear :HLH" as re-uired b& >e%tion <5 of the )IRC" and dire%tin' them to file the said returns #ithin :0 da&s from re%eipt of the noti%e. Petitioners refused to file their in%ome tax returns" %laimin' that the& are )*T resident aliens but onl& spe%ial temporar& visitors. The& also %laimed to be exempt b& virtue of the 5>.RP Eilitar& 9ases A'reement. CAI ho#ever found the petitioners 'uilt& of violatin' >e%tion <5 of the )IRC. This #as affirmed b& CA" rulin' that Oph&si%al or bodil& presen%eO in the %ountr& is suffi%ient b& itself to -ualif& the petitioners as resident aliens despite the fa%t that the& #ere not OresidentsO of the Philippines immediatel& before their emplo&ment b& the 5> Jovernment at >ubi% )aval 9ase and that their presen%e durin' the period %on%erned #as di%tated b& their respe%tive #or as emplo&ees of the 5> )aval 9ase. I/ 0$n petitioners are resident aliens" hen%e not exempt from >e%tion <5 of the )IRC R/ C?>" the& are. Thus" the& are not exempt from tax.

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>e% <5 )IRC provides that an alien residin' in the Phils #ho has a 'ross in%ome of at least P:"200 for the taxable &ear is re-uired to file an in%ome tax return. This is re'ardless of #hether 'ross in%ome #as derived from sour%es #$in or outside the Phils. This provision is also %ontained in the Eilitar& 9ases A'reement bet#een the Phils and 5>" #$% provides that no national of the 5> servin' $ emplo&ed in the Phils in %onne%tion #$ the %onstru%tion" maintenan%e" et% of bases shall be liable to pa& in%ome tax" ?GC?PT for in%ome derived from PDIFIPPI)? >*5RC?> $ sour%es other than 5> sour%es. In this %ase" the petitioners fall #ithin the letter of the %odal that an 6alien residin' in the Philippines7 is obli'ed 6to file an in%ome tax return.7 )one of them ma& be %onsidered a non.resident alien" 6a mere transient or so=ourner"7 #ho is not under an& le'al dut& to file an in%ome tax return under the Philippine Tax Code. This is made %lear b& Revenue Re'ulations )o. ; of the 4epartment of Ainan%e (Aeb :H<0) #$% provides that an alien a%tual present in the Philippines #ho is not a mere transient or so=ourner I> a resident of the Philippines for purposes of in%ome tax. 0hether he is a transient or not is determined b& his intentions #ith re'ard to the len'th and nature of his sta&. If he lives in the Philippines and has no definite intention as to his sta&" he is a resident. *ne #ho %omes to the Philippines for a definite purpose #hi%h in its nature ma& be promptl& a%%omplished is a transient. Also" loo in' at the 9ases A'reement" it is %lear that for Ameri%an nationals residin' in the %ountr& ma& be relieved of the dut& to pa& in%ome tax for an& 'iven &ear" it is in%umbent on them to sho# 9IR that in that &ear the& had derived in%ome ex%lusivel& from their emplo&ment in %onne%tion #ith the 5> bases" and none #hatever 6from Philippine sour%es or sour%es other than the 5> sour%es.7

return to and reside in the Philippines as the %ase ma& be for purpose of this >e%tion. RR 63>= J<anuar& N, 6=>=H Q di ra# mahanap] RR L3B6 J<ul& :6, @BB6H Q see separate do% (from Jreta) -IR Rulin' ::3BB JSep! L, @BBBH INCO,E TAXS Overseas C n!rac! 4 r/er . >e%tion ;3(C) of the Tax Code of :HHB provides that an individual %iti8en of the Philippines #ho is #or in' and derivin' in%ome from abroad as an overseas %ontra%t #or er is taxable onl& on in%ome from sour%es #ithin the Philippines. Corollar& thereto" >e%tion ;;(?)(3) of the same Code provides that a %iti8en of the Philippines #ho #or s and derives in%ome from abroad and #hose emplo&ment thereat re-uires him to be ph&si%all& present abroad most of the time durin' the taxable &ear. Thus" for purposes of exemption from in%ome tax" a %iti8en must be derivin' forei'n.sour%ed in%ome for bein' a non.resident %iti8en or for bein' an overseas %ontra%t #or er (C0). All emplo&ees #hose servi%es are rendered abroad for bein' se%onded or assi'ned for at least :23 da&s ma& fall under the first %ate'or& and are therefore exempt from pa&ment of Philippine in%ome tax. The p$rase T# s! ) !$e !i#eT shall mean that the said %iti8en shall have sta&ed abroad for at least :23 da&s in a taxable &ear. (>e%. (;)(%)" Revenue Re'ulations )o. :.BH) The same exemption applies to an overseas %ontra%t #or er but as su%h #or er" the time spent abroad is not material for tax exemption purposes. All that is re-uired is for the #or erRs emplo&ment %ontra%t to pass throu'h and be re'istered #ith the Philippine *verseas ?mplo&ment A'en%& (P*?A). (9IR Rulin' )o. 033.;000 dated >eptember 05" ;000)

Non"resident citi0ens (?) The term >nonresident citi(en> means/ (:) A %iti8en of the Philippines #ho establishes to the satisfa%tion of the Commissioner the fa%t of his ph&si%al presen%e abroad #ith a definite intention to reside therein. (;) A %iti8en of the Philippines #ho leaves the Philippines durin' the taxable &ear to reside abroad" either as an immi'rant or for emplo&ment on a permanent basis. (3) A %iti8en of the Philippines #ho #or s and derives in%ome from abroad and #hose emplo&ment thereat re-uires him to be ph&si%all& present abroad most of the time durin' the taxable &ear. (<) A %iti8en #ho has been previousl& %onsidered as nonresident %iti8en and #ho arrives in the Philippines at an& time durin' the taxable &ear to reside permanentl& in the Philippines shall li e#ise be treated as a nonresident %iti8en for the taxable &ear in #hi%h he arrives in the Philippines #ith respe%t to his in%ome derived from sour%es abroad until the date of his arrival in the Philippines. (5) The taxpa&er shall submit proof to the Commissioner to sho# his intention of leavin' the Philippines to reside permanentl& abroad or to

Non"resident aliens engaged in &usiness in the hilippines >e%. ;; (J) The term >nonresident alien> means an individual #hose residen%e is not #ithin the Philippines and #ho is not a %iti8en thereof. >e%. 5 W L" RR ; ( di ra# mahanap ] ,ini!u! wage earner Added b& RA H50< on Kune :B" ;002/ >e% ;;. (JJ) The term Ds!a!u! r& #ini#u# ;a'eE earner shall refer to rate fixed b& the Re'ional Tripartite 0a'e and Produ%tivit& 9oard" as defined b& the 9ureau of Fabor and ?mplo&ment >tatisti%s (9F?>) of the 4epartment of Fabor and ?mplo&ment (4*F?) (DD) The term D#ini#u# ;a'e earnerE shall refer to a #or er in the private se%tor paid the statutor& minimum #a'e, or to an emplo&ee in the publi% se%tor #ith %ompensation in%ome of not more than the statutor& minimum #a'e in the non.a'ri%ultural se%tor #here he$ she is assi'ned.

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2ependent >e% 35 (9)" Tax Code . Additional ?xemption for 4ependents. There shall be additional exemption of P;5"000 for ea%h dependent )*T ex%eedin' <. The additional exemption for dependents shall be %laimed b& onl& *)? of the spouses in the %ase of married individuals. In %ase of le'all& separated spouses" additional exemptions ma& be %laimed *)FC b& the spouse #ho has C5>T*4C of the %hildren $ %hildren/ PR*@I4?4" that the total amount of additional exemptions that ma& be %laimed b& both shall not ex%eed the maximum additional exemptions allo#ed. Aor purposes of this >ubse%tion" a T"epen"en!T means a le'itimate" ille'itimate or le'all& adopted %hild %hiefl& dependent upon and livin' #ith the taxpa&er if su%h dependent is not more than t#ent&.one (;:) &ears of a'e" unmarried and not 'ainfull& emplo&ed or if su%h dependent" re'ardless of a'e" is in%apable of self.support be%ause of mental or ph&si%al defe%t. Iinc #e !a% n !es see /in"s ) inc #e !a%U

PERSONA. AND ADDITIONA. EXE,PTIONS Pansac la v CIR Carmelino A. Pansa%ola filed his in%ome tax return for the taxable &ear :HHB that refle%ted an overpa&ment of P5"H50. In it" he %laimed the in%reased amounts of personal and additional exemptions under >e% 35 of the )IRC" althou'h his %ertifi%ate of in%ome tax #ithheld on %ompensation indi%ated the lesser allo#ed amounts on these exemptions. Thus" he %laimed the P5 ! refund #$ 9IR" but 9IR denied. CTA also denied his %laim" sa&in' it #ould be absurd to allo# the dedu%tion from a taxpa&er1s 'ross in%ome earned on a %ertain &ear of exemptions availin' on a different taxable &ear. Pansa%ola sou'ht re%onsideration" but it #as denied. CA also denied his petition" rulin' that the )IRC too effe%t on Kanuar& :" :HH2" thus the in%reased exemptions #ere effe%tive onl& to %over taxable &ear :HH2 and CA))*T be applied retroa%tivel&. I/ 0$n the exemptions under >e%tion 35 of the )IRC" #hi%h too effe%t on Kanuar& :" :HH2" %ould be availed of for the taxable &ear :HHB (thus ma in' Pansa%ola entitled to refund) R/ )*P Personal and additional exemptions under >e%tion 35 of the )IRC are fixed amounts to #hi%h %ertain individual taxpa&ers (%iti8ens" resident aliens) are entitled. Pers nal e%e#p!i ns are the theoreti%al personal" livin' and famil& expenses of an individual allo#ed to be dedu%ted from the 'ross or net in%ome of an individual taxpa&er. The& are fixed amounts in the sense that the amounts have been predetermined b& our la#ma ers (>e% 35" A and 9). The )IRC (>e% B5" 4) provides that personal and additional exemptions shall be determined in a%%ordan%e #ith the main provisions in Title II" )IRC . T$e NIRC "e)ines T!a%able inc #eT as the pertinent items of 'ross in%ome spe%ified in the )IRC" less the dedu%tions and$or personal and additional exemptions" if an&" authori8ed for su%h t&pes of in%ome b& the )IRC or other spe%ial la#s. (>e% 3:) *n the other hand" T!a%able &earT means the %alendar &ear" upon the basis of #hi%h the net in%ome is %omputed under Title II of the )IRC (>e% ;;" P). Eoreover" the taxable in%ome of an individual shall be %omputed on the basis of the %alendar &ear (>e% <3) in #hi%h the& are Opaid or a%%ruedO or Opaid or in%urred7 (>e% <5). T$ere) re, !$e inc #e sub(ec! ! inc #e !a% is !$e !a%pa&er8s inc #e as "erive" an" c #pu!e" "urin' !$e CA.ENDAR CR, $is !a%able &ear. 3&ection $K J)" J!" Ja" in relation to &ections I! and $$ J9" and &ections KI, KL and ME JH""

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C.EAR.C, #hat the la# should %onsider for the purpose of determinin' the tax due from an individual taxpa&er is his status and -ualified dependents at the cl se of the taxable &ear and )*T at the time the return is filed and the tax due thereon is paid. The )IRC (>e% 35 C) allo#s a taxpa&er to s!ill clai# the %orrespondin' full amount of exemption for a taxable &ear" e.'. if he marries" has additional dependents, he" his spouse" or an& of his dependents die, and if an& of his dependents marr&" turn ;: &ears old, or be%ome 'ainfull& emplo&ed. It is as if the %han'es in his or his dependents1 status too pla%e at the %lose of the taxable &ear. Conse-uentl&" his %orre%t taxable in%ome and his %orrespondin' allo#able dedu%tions had alread& been determined as of the end of the %alendar &ear. In the %ase of petitioner" the availabilit& of the aforementioned dedu%tions if he is thus entitled" #ould be refle%ted on his tax return filed on or before the April :5" :HHH as mandated b& >e%tion 5: (C) (:). >in%e the )IRC too effe%t on <anuar& 6, 6==N" the in%reased amounts of personal and additional exemptions under >e%tion 35" %an onl& be allo#ed as dedu%tions from the individual taxpa&er1s 'ross or net in%ome" as the %ase ma&be" for the taxable &ear :HH2 to be filed in :HHH. The )IRC made )* R?A?R?)C? that the personal and additional exemptions shall appl& on in%ome earned before Kanuar& :" :HH2. OTHERS5 Petitioner1s relian%e in 5mali is mispla%ed. In 5mali" >C noted that despite bein' 'iven authorit& b& the )IRC (>e% ;H) to ad=ust these exemptions" no ad=ustments #ere made to %over :H2H. RA B:LB is entitled OAn A%t Ad=ustin' the 9asi% Personal and Additional ?xemptions Allo#able to Individuals for In%ome Tax Purposes to the Povert& Threshold Fevel" Amendin' for the Purpose >e%tion ;H" Para'raph (F)" Items (:) and (;) (A)" of the )ational Internal Revenue Code" As Amended" and Aor *ther Purposes.O Thus" the ad=ustment provided b& RA B:LB effe%tive :HH;" should %onsider the povert& threshold level in :HH:" the time it #as ena%ted. And #e observed therein that sin%e the exemptions #ould espe%iall& benefit lo#er and middle.in%ome taxpa&ers" the exemption should be made to %over the past &ear :HH:. To su%h an extent" Rep. A%t )o. B:LB #as a so%ial le'islation intended to remed& the non.ad=ustment in :H2H (le'islative intent). D*0?@?R" in this %ase" there is )*TDI)J in the )IRC that expresses an& su%h intent. It is not a so%ial le'islation. At the time petitioner filed his :HHB return and paid the tax due thereon in April :HH2" the in%reased amounts of personal and additional exemptions in >e%tion 35 #ere not &et available. It has )*T C?T a%%rued as of 4e%ember 3:" :HHB" the last da& of his taxable &ear. Petitioner1s taxable in%ome %overs his in%ome for the %alendar &ear :HHB. The la# %annot be 'iven retroa%tive effe%t be%ause nothin' in the la# provides for su%h. Personal and additional exemptions are %onsidered as dedu%tions from 'ross in%ome. 4edu%tions for in%ome tax purposes parta e of the nature of tax exemptions" hen%e stri%tl& %onstrued a'ainst the taxpa&er and %annot be allo#ed unless 'ranted in the most expli%it and %ate'ori%al lan'ua'e too plain to be mista en.

RA B<3;" other#ise no#n as )n )ct to 8aximi(e the Contribution of &enior Citi(ens to 6ation Building, <rant Benefits and &pecial 9rivileges and for 7ther 9urposes #as passed on April ;3" :HH;. It 'ranted" amon' others" a ;03 sales dis%ount on pur%hases of medi%ines b& -ualified senior %iti8ens. In April :5" :HHL" petitioner E.?. Doldin' Corporation (E.?.) filed its :HH5 Corporate Annual In%ome Tax Return" %laimin' the ;03 sales dis%ount it 'ranted to -ualified senior %iti8ens. E.?. treated the dis%ount as dedu%tions from its 'ross in%ome purportedl& in a%%ordan%e #ith Revenue Re'ulation (RR) ;.H<" >e%tion ;(i) of the 9IR issued in Au'ust ;3" :HH3 #$% defines TAG CR?4IT as the amount representin' the ;03 dis%ount 'ranted to senior %iti8ens (for establishments relatin' to restos" dru'stores" theaters" et%.) ( the said "isc un! s$all be "e"uc!e" b& !$e sai" es!ablis$#en!s )r # !$eir 'r ss inc #e ) r inc #e !a% purp ses and from their 'ross sales for value.added tax or other per%enta'e tax purposes. E? %laimed dedu%tions amountin' to about PL00 ! but later filed the R?T5R) under PR*T?>T" ar'uin' that the dis%ount to senior %iti8ens should be treated as tax %redit under >e%. <(a) of RA B<3;" and )*T as mere dedu%tions from E?1s 'ross in%ome as provided under RR ;.H<. >e% <" RA B<3; states that senior %iti8ens shall be entitled to a ;03 dis%ount on establishments (relative to transporation" hotels" meds" et%.)" provided that priva!e es!ablis$#en!s #a& clai# !$e c s! as !a% cre"i! ()*T?" but not in %asea !a% cre"i! is a re%o'nition of partial pa&ment alread& made to#ards taxes due) >ubse-uentl&" E? sent 9IR a letter.%laim statin' that it overpaid its in%ome tax be%ause of 9IR1s erroneous interpretation of >e%. <(a) of RA B<3;. 4ue to 9IR1s ina%tion" E? filed an appeal before the CTA. CTA de%ided in favor of E? 'rantin' its %laim for refund partiall& (P:;; !)" representin' overpaid in%ome tax for :HH5. CTA said that the ;03 sales dis%ount 'ranted to -ualified senior %iti8ens should be treated as tax %redit and )*T as a dedu%tible item from 'ross in%ome $ sales" as pointed out b& RA B<3;. RA B<3; is a la# #$% prevails over an administrative issuan%e su%h as RR ;.H<. Jrant #as partial be%ause E? failed to support the rest of the %laimed dis%ount #$ %orrespondin' %ash slips. E? filed an ER attributin' its failure to submit the %ash slips to the inadverten%e of its independent auditor" and the %ourt should have a%%epted other eviden%e presented su%h as spe%ial re%ord boo s. It also ar'ued that the tax %redit should be based on the a%tual dis%ount and not on the a%-uisition %ost of the medi%ines. CTA denied the ER" appl&in' the CA rulin' in C.3 v. 4lmas 2rug Corporation #here the term 6%ost of dis%ount7 pertained onl& to 4IR?CT ACI5I>IT*) C*>T" ex%ludin' administrative and other in%remental %osts. CA on appeal a'reed #$ CTA on this point. It also said that %laims for refund" bein' in the nature of a %laim for exemption" should be %onstrued in strictissimi ,uris a'ainst the taxpa&er. E? thus elevated %ase to >C. I/ :) 0$n lo#er %ourts erred in not appre%iatin' other do%uments provin' the amt of dis%ounts 'ranted to senior %iti8ens (other than the %ash slips) ( )*" lo#er %ourts #ere %orre%t ;) 0$n the term 6%ost7 under >e%<A of RA B<3; is e-uivalent *)FC to ACI5I>ITI*) C*>T ( )*" E? is entitled to the A5FF amount of sales dis%ount" not =ust to a%-uisition %ost R/

,.E. H l"in's C rp v CIR K CTA

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;03 sales dis%ount ma& be %laimed as a TAG CR?4IT" per RA B<3;. :) Aindin's of fa%t of the TC" parti%ularl& #hen affirmed b& the CA" are bindin' upon the >C" unless there is stron' eviden%e to merit other#ise. 0hile it ma& be true that the authenti%ated spe%ial re%ord boo s &ield the same data found in the %ash slips" the& %annot be %onsidered b& the %ourts to %orroborate pie%es of eviden%e that have" in the first pla%e" been disallo#ed. E.?. offered the disallo#ed %ash slips as eviden%e onl& after the CTA had rendered its assailed de%ision. Also" proofs presented entitlin' a taxpa&er to an exemption must be >TRICTFC s%rutini8ed. ;) Bicolandia 2rug Corporation v. C.3 the term 6%ost7 as found in RA B<3; #as interpreted b& >C to mean the ;03 dis%ount extended b& a private establishment to senior %iti8ens in their pur%hase of medi%ines. >C also said that J*@ should A5FFC >D*5F4?R the %ost of the sales dis%ount 'ranted to senior %iti8ens. Thus" the CA de%ision %onstruin' the #ord 6%ost7 as the a%-uisition %ost of medi%ines #as R?@?R>?4 and >?T A>I4?. A%%ordin'l&" E.?. is entitled to a tax %redit e-uivalent to the a%tual ;03 sales dis%ount it 'ranted to -ualified senior %iti8ens. D*0?@?R" >C did )*T a'ree #$ lo#er %ourts on #hat E? is entitled to. RA B<3; expressl& provides that the sales dis%ount ma& be %laimed as TAG CR?4IT" not as tax refund. In this %ase" E? ori'inall& pra&ed for a tax refund for its tax overpa&ment for :HH5. The CTA and the CA 'ranted the desired refund" albeit at a lo#er amount due to their interpretation" erroneous as it turned out to be" of the term 6%ost.7 It must be noted that on Aeb ;L" ;00<" RA H;5B" or The 4xpanded &enior Citi(ens )ct of $AAI" amendin' RA B<3;" #as si'ned into la#" usherin' in" upon its effe%tivit& on Ear%h ;:" ;00<" a ne# tax treatment for sales dis%ount pur%hases of -ualified senior %iti8ens of medi%ines. >aid la# provides that senior %iti8ens shall be entitled to a ;03 dis%ount on establishments and the establishments ma& %laim dis%ounts as !a% "e"uc!i n based on the net %ost of the 'oods sold or servi%es rendered. TD5>" startin' taxable &ear ;00<" the ;03 sales dis%ount 'ranted b& establishments to -ualified senior %iti8ens is to be treated as tax dedu%tion" no lon'er as tax %redit. TH=&, C.3 ordered to issue a tax credit certificate in favor of 84 amounting to 9!L!, $A!.M!

<. Inc #e Ta% n Resi"en! F rei'n C rp ra!i ns -RANCH PROFIT RE,ITTANCE TAX -an/ ) A#erica NT K SA v CA 9an of Ameri%a #as a forei'n %orporation dul& li%ensed to en'a'e in business in the Philippines. It paid :53 bran%h profit remittan%e tax on profit from its re'ular ban in' unit operations (about PBE!) and on profit from its forei'n %urren%& deposit unit operations (about P<<5 !). The tax #as based on net profits after in%ome tax #$o dedu%tin' the amount %orrespondin' to the :53 tax. Fater" 9an of Ameri%a %laimed a refund from the 9IR of the portion of pa&ment %orrespondin' to the :53 bran%h profit remittan%e tax" 'iven that the tax should have been %omputed on the basis of profits ACT5AFFC remitted" and )*T on the amount 9?A*R? profit remittan%e tax. CTA upheld petitioner ban in its %laim for refund" but CA set aside CTA de%ision. I/ 0$n CA #as %orre%t in reversin' CTA1s de%ision (#hat is the %orre%t tax base for the 9RA)CD profit remittan%e tax]) ( )*" CTA #as %orre%t. R/ CTA #as %orre%t, ban %an %laim refund be%ause tax base should be the PR*AIT remitted abroad" )*T that #$% is applied for. 0hat is appli%able is still Rev Rulin' of Kan ;:" :H20. )othin' in the la# indi%ates that the :53 tax on bran%h profit remittan%e is on the total amount of profit to be remitted abroad #hi%h shall be %olle%ted and paid in a%%ordan%e #ith the tax #ithholdin' devi%e provided in >e%tions 53 and 5< of the Tax Code. The Tax Code provides that OA)C profit remitted abroad b& a bran%h to its head offi%e shall be sub=e%t to a tax of :53.O )*0D?R? is there said of Obase on the total amount ACT5AFFC APPFI?4 for b& the bran%h #ith the Central 9an of the Philippines. T$e !er# Tan& pr )i! re#i!!e" abr a"T can nl& #ean suc$ pr )i! as is T) r;ar"e", sen!, r !rans#i!!e" abr a"T as !$e ; r" Tre#i!!e"T is c ## nl& an" p pularl& accep!e" an" un"ers! ". In the :53 remittan%e tax" the la# spe%ifies its o#n tax base to be on the Oprofit remitted abroad.O There is absolutel& nothin' e-uivo%al or un%ertain about the lan'ua'e of the provision. The tax is imposed on the amount >?)T A9R*A4" and the la# (then in for%e) %alls for nothin' further. The taxpa&er is a sin'le entit&" and it should be understandable if" su%h as in this %ase" it is the lo%al bran%h of the %orporation" usin' its o#n lo%al funds" #hi%h remits the tax to the Philippine Jovernment. The remittan%e tax #as %on%eived in an attempt to e-uali8e the in%ome tax burden on forei'n %orporations maintainin'" on the one hand" lo%al bran%h offi%es and or'ani8in'" on the other hand" subsidiar& domesti% %orporations #here at least a ma=orit& of all the latterRs shares of sto% are o#ned b& su%h forei'n %orporations. CIR v -urr u'$s .!" 9urrou'hs Ftd #as a forei'n %orporation doin' business in the Philippines #$ a bran%h in Ea ati. In :HBH" 9urrou'hs applied #ith the Central 9an for authorit& to remit their bran%h profits to their parent %ompan& abroad amountin' to PB.LE.

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It paid the :53 bran%h profit remittan%e tax based on the prior amount (P:.:<BE) but a%tuall& remitted to the head offi%e onl& approximatel& PL.5E/ Y amount applied for (PB.LE) ( bran%h profit (:53 of B.LE) + L.5E The& filed a %laim for a tax refund" sa&in' that the :53 remittan%e tax should have been based on the AE*5)T ACT5AFFC R?EITT?4 and )*T the amount 9?A*R? a%tual remittan%e. The tax should have amounted to PHB<"HHH.2H. The CTA a'reed #ith 9urrou'hs Fimited and ordered the CIR to issue a tax %redit in their favor. CIR filed a petition #$ the >C to determine the appropriate tax base to be used in %omputin' the :53 bran%h profit remittan%e tax. I/ 0$n the tax base is the amount applied for remittan%e or the profit a%tuall& remitted after dedu%tin' the :53 profit remittan%e tax. 4HAT IS ACTUA..C RE,ITTED 0$) 9urrou'hs Fimited is entitled to the tax refund . CES, THEC ARE R/ )IRC >e% ;< provides that an& profit remitted abroad b& the bran%h to its head offi%e shall be sub=e%t to a tax of :53. 9ased on this" the 6=NB -IR Rulin' also provided (%$o Comnissioner Plana) that the :53 #ould be imposed on the bran%h profits a%tuall& remitted and not on the total bran%h profits out of #hi%h the remittan%e is to be made. In the present %ase" the CIR ar'ues that the 6=NB -IR Rulin' #as superseded b& 6=N@ ,e# ran"u# Circular N . N3N@ (Ear%h :B" :H2;) #hi%h states that the tax #ill be based on the profit remittan%e a%tuall& applied for be%ause the tax is %olle%ted at the sour%e. Do#ever" the %ourt ruled that the bran%h profits #ere a%tuall& remitted in :HBH" ma in' the appli%able interpretation that of the :H20 9IR Rulin' and )*T the :H2; Eemorandum Cir%ular. >e%. 3;B of the )IRC states that rulin's %annot be 'iven retroa%tive effe%t if the& #ould %ause pre=udi%e to the taxpa&er" ex%ept in the follo#in' ex%eptions/ a" where the taxpayer deliberately misstates or omits material facts from his return or in any document reDuired of him by the Bureau of .nternal 3evenue Jb" where the facts subseDuently gathered by the Bureau of .nternal 3evenue are materially different from the facts on which the ruling is based, or Jc" where the taxpayer acted in bad faith. In this %ase" ma in' the :H2; Eemorandum Cir%ular retroa%tive #ould pre=udi%e 9urrou'hs Fimited" and the& do not fall into an& of the ex%eptions of >e%. 3;B. Appl&in' the 9IR rulin'" 9urrou'hs #as %orre%t in %laimin' it made an overpa&ment" so the remittan%e tax should be %omputed as follo#s/ Profits a%tuall& remitted (PL.5E) Y remittan%e tax rate (:53) + PHB0 ! )*T?/ JF?)) sa&s that >ir said thereRs somethin' #ron' #ith this %ase. ItRs a double appli%ation of the :53 .. &ou appl& :53 to the bran%h profit and #hen &ou 'et the sum" &ou still appl& the remittan%e tax rate

Compania %ontended that the %orre%t tax base for %omputin' the bran%h profit remittan%e tax should be the profit ACT5AFFC remitted abroad net of in%ome alread& sub=e%ted to final tax. To support its %ontention" Compania brou'ht to the attention CIR v vs. 9urrou'hs in Kan ;:" :H20 #$% provides that :53 remittan%e tax should be imposed on amt ACT5AFFC remitted. CIR on the other hand %ontends that the %ase of 9urrou'hs is not appli%able to the instant %ase be%ause of Revenue Eemorandum Cir%ular )o. 2.2;" dated Ear%h :B" :H2;" #hi%h states that sin%e the Otax is imposed and %olle%ted at sour%e" ne%essaril& the tax base should be the amount a%tuall& applied for b& the bran%h #ith the Central 9an of the Philippines as profit to be remitted abroad.O As the latter rulin' seems to have 'iven rise to some mis%on%eption that it modified 9IR Rulin' )o. 0:L.BH #ith respe%t to the manner of %omputation of the :53 bran%h profit remittan%e tax" this O))ice issue" a clari)ica! r& rulin' n Oc! ber @:, 6=N6 e%plainin' V The above rulin' (of Kanuar& ;:" :H20) merel& ?EPDA>IT?4 the distin%tion bet#een the total bran%h profit #hi%h is remittable and that portion of the bran%h profit a%tuall& remitted #ithout dedu%tion on a%%ount of the tax to be paid. The phrase Tan& pr )i! re#i!!e" abr a"T s$ ul" be c ns!rue" ! #ean !$e pr )i! ! be re#i!!e". Den%e" there must be an ac!ual re#i!!ance" as distin'uished from profit #hi%h is remittable. ?GAEPF?/ If the total bran%h profit is P::5 but the amount to be remitted is P:00 " then tax base should be P:00 . Eoreover" the :53 profit remittan%e tax imposed b& >e%tion ;< (b)(;) of the Tax Code is an in%ome tax" it is therefore %lear that the same is non.dedu%tible from the 'ross (profit) in%ome. Inasmu%h as the tax is an exa%tion on profit reali8ed for remittan%e abroad" the dedu%tion thereof as an expense is not sustained b& la# no#here in >e%tion 30 of the Tax Code is it provided that the same is dedu%tible. 9esides dedu%tions from 'ross in%ome are masters of le'islative 'ra%e" #hat is not expressl& 'ranted b& the la# is deemed #ithheld. Considerin' that the :53 bran%h profit remittan%e tax is imposed and %olle%ted at sour%e" ne%essaril& the tax base should be the amount a%tuall& applied for b& the bran%h #ith the Central 9an of the Philippines as profit to be remitted abroad. It is desired that this Cir%ular be 'iven as #ide publi%it& as possible. Re#i!!e" W refers to the total bran%h profits #$% #ould be sent abroad and )*T total profits of the bran%h (not all of #$% need to be sent abroad) TD5>" the %ompan& is entitled to a refund or tax %redit in the amount of P:5;"LH0.L: %orrespondin' to overpaid bran%h profit remittan%e taxes durin' the &ears from :H2: to :H23. As to the :H2< and :H25 bran%h profit remittan%e taxes" no refund or tax %redit is due the petitioner sin%e the latter did not present an& proof of passive in%ome it re%eived durin' the period.

F. Inc #e Ta% n N n3resi"en! F rei'n C rp ra!i ns C #pania General T bac s "e Filipinas v CIR Q CTA Case Compania #as a forei'n %orp doin' business in the Phils throu'h a bran%h offi%e. It paid :53 bran%h profit remittan%e and later %laimed a refund for overpa&ment. CIR v SC < $ns n an" S n, Inc. >C Kohnson and >on" In%." a domesti% %orporation (4C)" entered into a li%ense a'reement #ith the >C Kohnson and >on" 5>A" a non.resident forei'n

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%orporation ()RAC)" #here >C Kohnson #as 'ranted the ri'ht to use" amon' others" the trademar " patents and te%hnolo'& o#ned b& the )RAC. In return" the 4C obli'ed to pa& >C Kohnson 5>A ro&alties based on a per%enta'e of net sales and sub=e%ted the same to ;53 #ithholdin' tax on ro&alt& pa&ments #hi%h respondent paid to the 9ureau of Internal Revenue (9IR). >ubse-uentl&" the 4C %laimed from the 9IR a refund of overpaid #ithholdin' tax on ro&alties ar'uin' that the preferential rate of :03 (instead of ;53) should appl& to the respondent be%ause ro&alties paid b& it to >C Kohnson 5>A is onl& sub=e%t to :03 #ithholdin' tax PURSUANT TO THE ,OST FA1ORED C.AUSE of the RP.5> Tax Treat& in relation to the RP.Jerman& Tax Treat&. The RP.5> Tax Treat& provides that/ o Ro&alties derived b& a resident of one of the Contra%tin' >tates from sour%es #ithin the other Contra%tin' >tate ma& be taxed b& both Contra%tin' >tates. o Do#ever" the tax imposed b& that Contra%tin' >tate shall not ex%eed/ o In the %ase of the 5nited >tates" :53 of the 'ross amount of the ro&alties" and in the %ase of the Philippines" the least of ;53 of the 'ross amount of the ro&alties" o :53 of the 'ross amount of the ro&alties" #here the ro&alties are paid b& a %orporation re'istered #ith the Philippine 9oard of Investments and en'a'ed in preferred areas of a%tivities, and o The lowest rate of hilippine tax that !a# &e i!posed on ro#alties of the sa!e 4ind paid under si!ilar circu!stances to a resident of a third -tate. The RP.Jerman& Tax Treat& provides that such royalties may also be taxed in the Contracting &tate in which they arise, and according to the of that &tate, but the tax so charged shall not exceed !AQ of the gross amount of royalties from the use of a patent, trademakrk, etc. The RP.0est Jerman& Tax Treat& also allo#s tax %redit of ;03 of the 'ross amount of su%h ro&alties a'ainst Jerman in%ome and %orporation tax for the taxes pa&able in the Philippines on su%h ro&alties #here the tax rate is redu%ed to :0 to :53 under su%h treat&. I/ 0$) >C Kohnson 5>A is entitled to the 6most favored nation7 tax rate of :03 on ro&alties as provided in the RP.5> Tax Treat& in relation to the RP.Jerman& Tax Treat& R/ )*. The %on%essional tax rate of :03 provided for in the RP.Jerman& Tax Treat& should appl& if the tax imposed upon ro&alties in the RP.5> Tax Treat& and in the RP.Jerman& Tax Treat& are paid under similar %ir%umstan%es. This #ould mean that respondent >C Kohnson must proved that the RP.5> Tax Treat& 'rants similar tax reliefs to residents of the 5> in respe%t of the taxes imposable upon ro&alties earned from sour%es #ithin the Philippines as those allo#ed to their Jerman %ounterparts under the RP.Jerman& Tax Treat&. The RP.5> and RP.Jerman& Tax Treaties do not %ontain similar provisions on tax %reditin'. Arti%le ;< of the RP.Jerman& Tax Treat& expressl& allo#s %reditin' a'ainst in%ome and %orporation tax of ;03 of the 'ross amount of ro&alties paid under the la# of the Philippines. *n the other hand" Arti%le ;3 of the RP.5> Tax Treat&" #hi%h is the %ounterpart provision #ith respe%t to relief for double taxation" does not provide for similar %reditin' of ;03 of the 'ross amount of ro&alties paid.

The purpose of the most favored nation %lause is to 'rant to the %ontra%tin' part& treatment not less favorable than that #hi%h has been or ma& be 'ranted to the most favored amon' other %ountries. It is intended to establish the prin%iple of e-ualit& of international treatment providin' that the %iti8ens or sub=e%ts of the %ontra%tin' nations ma& en=o& the privile'es a%%orded b& either part& to those of the most favored nation. The essen%e of the prin%iple is to allo# the taxpa&er in one state to avail of more liberal provisions 'ranted in another tax treat& to #hi%h the %ountr& of residen%e of su%h taxpa&er is also a part& provided that the sub=e%t matter of taxation" in this %ase ro&alt& in%ome" is the same as that in eh tax treat& under #hi%h the taxpa&er is liable. 9oth Arti%les :3 of the RP.5> Tax Treat& and Arti%le :; of the RP.Jerman& Tax Treat& spea s of tax on ro&alties for the use of trademar " patent" and te%hnolo'&. The entitlement of the :03 rate of 5> firms despite the absen%e of a mat%hin' %redit (;03 for ro&alties) #ould dero'ate from the desi'n behind the most 'rant e-ualit& of international treatment sin%e the tax burden laid upon the in%ome of the investor is not the same in the t#o %ountries. TD? >IEIFARITC I) TD? CIRC5E>TA)C?> *A PACE?)T *A TAG?> I> A C*)4ITI*) A*R TD? ?)K*CE?)T *A E*>T AA@*R?4 )ATI*) TR?ATE?)T PR?CI>?FC T* 5)4?R>C*R? TD? )??4 A*R ?I5AFITC *A TR?ATE?)T. RP.5> Tax Treat& DOES NOT GI1E A ,ATCHING CREDIT OF @BG FOR THE TAXES PAID TO THE PHI.IPPINES ON ROCA.TIES AS A..O4ED UNDER the RP.0est Jerman& Tax Treat&" >C Kohnson %annot be deemed entitled to the :03 'ranted under the latter treat& for the reason that there is no pa&ment of taxes on ro&alties under similar %ir%umstan%es. Tax refunds are in the nature of tax exemptions. As su%h the& are re'arded as in dero'ation of soverei'n authorit& and to be %onstrued strictissimi ,uris a'ainst the person or entit& %laimin' exemption. The burden of proof is upon him #ho %laims exemption in his favor and he must be able to =ustif& his %laim b& the %learest 'rant of or'ani% or statute la#. >C Kohnson is %laimin' for a refund of the alle'ed overpa&ment of tax on ro&alties, ho#ever" there is nothin' on re%ord to support a %laim that the tax on ro&alties under the RP.5> Tax Treat& is paid under similar %ir%umstan%es as the tax on ro&alties under the RP.0est Jerman& Treat&.

,arubeni v CIR Earubeni Corporation of Kapan has e-uit& investments in AJWP of Eanila. Aor the first -uarter of :H2: endin' Ear%h 3:" AJWP de%lared and paid %ash dividends to petitioner in the amount of P2<H"B;0 and #ithheld the %orrespondin' :03 final dividend tax thereon. >imilarl&" for the third -uarter of :H2: endin' >eptember 30" AJWP de%lared and paid P2<H"B;0 as %ash dividends to petitioner and #ithheld the %orrespondin' :03 final dividend tax thereon. AJWP dire%tl& remitted the %ash dividends to petitionerRs head offi%e in To &o" Kapan" net not onl& of the :03 final dividend tax in the amounts of PBL<"B<2 for the first and third -uarters of :H2:" but also of the #ithheld :53 profit remittan%e tax based on the remittable amount after dedu%tin' the final #ithholdin' tax of :03. These taxes #ere paid b& AJWP to the 9IR as eviden%ed b& Central 9an Re%eipts. Petitioner" sou'ht a rulin' from the 9ureau of Internal Revenue on #hether or not the dividends petitioner re%eived from AJWP are effe%tivel& %onne%ted #ith its %ondu%t or business in the Philippines as to be %onsidered bran%h profits sub=e%t to the :53 profit remittan%e tax imposed under >e%tion ;< (b) (;) of the )ational

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Internal Revenue Code as amended b& Presidential 4e%rees )os. :B05 and :BB3. In repl& to petitionerRs -uer&" A%tin' Commissioner Ruben An%heta ruled that the dividends re%eived b& Earubeni from AJWP are not in%ome arisin' from the business a%tivit& in #hi%h Earubeni is en'a'ed. A%%ordin'l&" said dividends if remitted abroad are not %onsidered bran%h profits for purposes of the :53 profit remittan%e tax imposed b& >e%tion ;< (b) (;) of the Tax Code" as amended. Petitioner %laimed for the refund or issuan%e of a tax %redit Orepresentin' profit tax remittan%e erroneousl& paid on the dividends remitted b& AJWP to the head offi%e in To &o. Commissioner of Internal Revenue denied petitionerRs %laim for refund$%redit. The Court of Tax Appeals affirmed. Den%e" the instant petition for revie#. It is the ar'ument of petitioner %orporation that follo#in' the prin%ipal.a'ent relationship theor&" Earubeni Kapan is li e#ise a resident forei'n %orporation sub=e%t onl& to the :0 3 inter%orporate final tax on dividends re%eived from a domesti% %orporation in a%%ordan%e #ith >e%tion ;<(%) (:) of the Tax Code of :HBB. Publi% respondents" ho#ever" are of the %ontrar& vie# that Earubeni" Kapan" bein' a non.resident forei'n %orporation and not en'a'ed in trade or business in the Philippines" is sub=e%t to tax on in%ome earned from Philippine sour%es at the rate of 35 3 of its 'ross in%ome under >e%tion ;< (b) (:) of the same Code but expressl& made sub=e%t to the spe%ial rate of ;53 under Arti%le :0(;) (b) of the Tax Treat& of :H20 %on%luded bet#een the Philippines and Kapan. Thus" taxes #ithheld of :0 3 as inter%orporate dividend tax and :5 3 as profit remittan%e tax totals (si%) ;5 3" the amount refundable offsets the liabilit&" hen%e" nothin' is left to be refunded. I/ 0*) Earubeni Kapan is a resident or a non.resident forei'n %orporation under Philippine la#s. R/ C?> The alle'ed overpaid taxes #ere in%urred for the remittan%e of dividend in%ome to the head offi%e in Kapan #hi%h is a separate and distin%t in%ome taxpa&er from the bran%h in the Philippines. There %an be no other lo'i%al %on%lusion %onsiderin' the undisputed fa%t that the investment (totallin' ;23.;L0 shares in%ludin' that of nominee) #as made for purposes pe%uliarl& 'ermane to the %ondu%t of the %orporate affairs of Earubeni Kapan" but %ertainl& not of the bran%h in the Philippines. It is thus %lear that petitioner" havin' made this independent investment attributable onl& to the head offi%e" %annot no# %laim the in%rements as ordinar& %onse-uen%es of its trade or business in the Philippines and avail itself of the lo#er tax rate of :0 3. 9ut #hile publi% respondents %orre%tl& %on%luded that the dividends in dispute #ere neither sub=e%t to the :5 3 profit remittan%e tax nor to the :0 3 inter%orporate dividend tax" the re%ipient bein' a non.resident sto% holder" !$e& 'r ssl& erre" in $ l"in' !$a! n re)un" ;as ) r!$c #in' ! !$e pe!i!i ner because !$e !a%es !$us ;i!$$el" ! !alle" !$e @L G ra!e i#p se" b& !$e P$ilippine3<apan Ta% C nven!i n pursuan! ! Ar!icle 6B J@H JbH. o T si#pl& a"" !$e !; !a%es ! arrive a! !$e @L G !a% ra!e is ! "isre'ar" a basic rule in !a%a!i n !$a! eac$ !a% $as a "i))eren! !a% basis. 0hile the tax on dividends is dire%tl& levied on the dividends re%eived" Othe tax base upon #hi%h the :5 3 bran%h profit remittan%e tax is imposed is the profit a%tuall& remitted abroad.O Publi% respondents li e#ise erred in automati%all& imposin' the ;5 3 rate under Arti%le :0 (;) (b) of the Tax Treat& as if this #ere a flat rate. A %loser loo at the

Treat& reveals that the tax rates fixed b& Arti%le :0 are the maximum rates as refle%ted in the phrase Oshall not ex%eed.O This means that an& tax imposable b& the %ontra%tin' state %on%erned should not ex%eed the ;5 3 limitation and that said rate #ould appl& onl& if the tax imposed b& our la#s ex%eeds the same. In other #ords" b& reason of our bilateral ne'otiations #ith Kapan" #e have a'reed to have our ri'ht to tax limited to a %ertain extent to attain the 'oals set forth in the Treat&. Petitioner" bein' a non.resident forei'n %orporation #ith respe%t to the transa%tion in -uestion" the appli%able provision of the Tax Code is >e%tion ;< (b) (:) (iii) in %on=un%tion #ith the Philippine.Kapan Treat& of :H20 o Petitioner" bein' a non.resident forei'n %orporation" as a 'eneral rule" is taxed 35 3 of its 'ross in%ome from all sour%es #ithin the Philippines. `>e%tion ;< (b) (:)a. o H ;ever, a "isc un!e" ra!e ) 6LG is 'iven ! pe!i!i ner n "ivi"en"s receive" )r # a " #es!ic c rp ra!i n JAGKPH n !$e c n"i!i n !$a! i!s " #icile s!a!e J<apanH e%!en"s in )av r ) pe!i!i ner, a !a% cre"i! ) n ! less !$an @B G ) !$e "ivi"en"s receive". This ;0 3 represents the differen%e bet#een the re'ular tax of 35 3 on non.resident forei'n %orporations #hi%h petitioner #ould have ordinaril& paid" and the :5 3 spe%ial rate on dividends re%eived from a domesti% %orporation. It is readil& apparent that the :5 3 tax rate imposed on the dividends re%eived b& a forei'n non.resident sto% holder from a domesti% %orporation under >e%tion ;< (b) (:) (iii) is easil& #ithin the maximum %eilin' of ;5 3 of the 'ross amount of the dividends as de%reed in Arti%le :0 (;) (b) of the Tax Treat&.

N.1. Ree"eri( DA#s!er"a#E an" R &al In!er cean .ines v CIR E.@. Amstelmeer and E.@. OAmstel roon7" vessels of ).@. Reederi= OAmsterdamO ()@RA)" %alled on Philippine ports to load %ar'o to be shipped to forei'n destinations. The frei'ht fees #ere paid abroad in the amount of 5>XH2":B5.00 in :HL3 for the former and 5>X:3B":H3.00 in :HL< for the latter. Ro&al Intero%ean Fines (RIF) a%ted as husbandin' a'ent for the vessels for a fee or %ommission. )o in%ome tax appears to have been paid b& )@RA on the frei'ht re%eipts. The CIR assessed )@RA1s defi%ien%& in%ome taxes as Oa non.resident forei'n %orporation not en'a'ed in trade or business in the Philippines7 under >e%tion ;< (b) (:) of the then Tax Code. *n the other hand" RIF" on the assumption that )@RA is a forei'n %orporation en'a'ed in trade or business in the Philippines" filed an in%ome tax return in the amount of :"235.5; and H"<<2.H<" respe%tivel&" pursuant to >e%tion ;< (b) (;) in relation to >e%tion 3B (9) (e) of the )IRC and >e%tion :L3 of Revenue Re'ulations )o. ;" and %omputed at the ex%han'e rate of ;.00 + X:.00. 9oth )@RA and RIF filed a protest a'ainst the CIR1s assessment" #hi%h #as denied. *n appeal to the Court of Tax Appeals" the assessments #ere modified b& eliminatin' the 503 fraud %ompromise penalties imposed upon petitioners. A motion for re%onsideration #as filed but it #as denied b& the %ourt. I/ 0$n )@RA" a forei'n %orporation not havin' an& offi%e or pla%e of business in the Philippines" be %onsidered" for tax purposes" as a forei'n %orporation not

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en'a'ed in trade or business in the Philippines (non.resident %orporation) *R a forei'n %orporation en'a'ed in trade or business in the Philippines (resident %orporation) R/ )@RA is a forei'n %orporation n ! au!$ ri*e" r license" ! " business in !$e P$ilippines. In fa%t" i! nl& #a"e !; calls in P$ilippine p r!s J6=7: an" 6=7AH . Aor a forei'n %orporation ! be c nsi"ere" en'a'e" in !ra"e r business in !$e P$ilippines ) r !a%a!i n purp ses, i!s business !ransac!i ns in !$e c un!r& #us! be c n!inu us, an" n ! casual, as in this %ase. The then Tax Code (and the present )IRC) taxes forei'n %orporations on their in%ome onl& from sour%es #ithin the Philippines (domesti% %orporations are taxed on their in%ome from sour%es #ithin and outside the Philippines). A resident %orporation (a forei'n %orporation doin' business in the Philippines) is permitted to dedu%tions from 'ross in%ome but onl& to the extent %onne%ted #ith in%ome earned in the Philippines pursuant to >e%tion ;< (b) (;) in relation to >e%tion 3B (9) (e) of the Code. *n the other hand" a n n3resi"en! c rp ra!i n Ja ) rei'n c rp ra!i n n ! " in' business in !$e P$ilippinesH is !a%able n inc #e )r # all s urces ;i!$in !$e P$ilippines, as in!eres!, "ivi"en"s, ren!s, salaries, ;a'es, pre#iu#s, annui!ies C #pensa!i ns, re#unera!i ns, e# lu#en!s, r !$er )i%e" r "e!er#inable annual r peri "ical r casual 'ains, pr )i!s an" inc #e an" capi!al 'ainsT T$e !a% is :BG Jn ; :LGH ) suc$ 'r ss inc #e pursuan! ! Sec!i n @A JbH J6H ) !$e !$en Ta% C "e. >in%e N1RA is a n n3resi"en! ) rei'n c rp ra!i n " or'ani8ed and existin' under the la#s of The )etherlands #ith prin%ipal offi%e in Amsterdam an" n ! license" ! " business in !$e P$ilippines, !$e la!!er pr visi n s$ ul" appl&. This means that N1RA s$ ul" be !a%e" a! !$e ra!e ) :LG ) i!s 'r ss inc #e re'ar"less ) i!s a# un!. (A resident %orporation is taxed at a rate of ;53 upon the amount but #hi%h taxable net in%ome does not ex%eed :00"000.00" and 353 upon the amount but #hi%h taxable net in%ome ex%eeds :00"000.00.)

CIR then demanded pa&ment for the Improperl& A%%umulated ?arnin's Tax (IA?T). 0ine Eer%hant appealed to the Court of Tax Appeals (CTA). CTA ruled that the pur%hase of shares in 0a% 0a% " 5nion Insuran%e" and A%me Commer%ial #ere harmless and not sub=e%t to ;53 surtax. Do#ever" the pur%hase of 5> T.9ills #as in no #a& related to the business of importin' and sellin' #ines and ordered 0ine Eer%hants to pa& IA?T on the T. 9ills. 0ine Eer%hants appealed. The& %ontend that it #ill be used to finan%e their importation" a dollar reserve #ould be useful in meetin' ur'ent orders of %ustomers" and the mone& #ill be used for future expansion b& bu&in' its o#n lot and offi%e buildin'. I/ 0$n the investment of the 5> Treasur& 9ills should be %onsidered an investment in unrelated business. R/ C?>" it is unrelated. 6Reas nable nee"sE #eans !$e i##e"ia!e nee"s ) !$e business. I) !$e c rp ra!i n cann ! pr ve !$is, !$en i!s n ! an i##e"ia!e nee". Also" Ameri%an %ases have held that investment of earnin's of a %orporation in sto% se%urities of an unrelated business usuall& indi%ates an a%%umulation be&ond the reasonable need of the business. To determine the 6reasonable needs7 of the business in order to =ustif& an a%%umulation of earnin's" the 5> Courts have developed the i##e"iac& !es! #hi%h %onstrued the #ords reas nable nee"s of the business to mean the i##e"ia!e nee"s ) !$e business " and it #as 'enerall& held that if the %orporation did not prove an immediate need for the a%%umulation of the earnin's and profits" the a%%umulation #as not for the reasonable needs of the business and the penalt& tax #ould appl&. The c n!r llin' in!en!i n ) !$e !a%pa&er is that #hi%h is #ani)es!e" AT THE TI,E ) accu#ula!i n and NOT subse9uen!l& "eclare" in!en!i ns #hi%h are merel& the produ%t of afterthou'ht. A spe%ulative and indefinite purpose #ill not suffi%e.

.. I#pr perl& Accu#ula!e" Earnin's Ta% JIAETH T$e ,anila 4ine ,erc$an!s, Inc. v CIR Eanila 0ine Eer%hants" #hi%h #as or'ani8ed in :H3B" #as en'a'ed in the importation and sale of #his e&" #ines" li-uor" and distilled spirits. Its ori'inal paid up %apital #as P500 . At one point" the& redu%ed their %apital to P;50 #ith the approval of the >?C but this redu%tion #as never implemented. 0hen business be'an to flourish" the& in%reased their %apital to P:E a'ain #ith >?C approval in :H52. 0ine Eer%hants invested in several %ompanies in%ludin' A%me Commer%ial Co. 5nion Insuran%e of Canton" and bou'ht shares in 0a% 0a% Jolf and Countr& Club. 0ine Eer%hants also a%-uired 5>A Treasur& 9ills valued at around P3<B The CIR examined the boo s of 0ine Eer%hants and found that it had unreasonabl& a%%umulated a surplus of P<;2 from :H<B.:H5B in ex%ess of the reasonable needs of business sub=e%t to the surtax of ;3 imposed b& >e%tion ;5 of the Tax Code.

CIR v Tuas n In :H2:" CIR assessed Antonio Tuason" In%. ;53 surtax on unreasonable a%%umulation of surplus for the &ears :HB5 to :HB2 b& virtue of >e%tion ;5 of the Tax Code" #hi%h levies an additional tax on %orporation improperl& a%%umulatin' profits or surplus. CIR based his determination on the 'round that/ a. Antonio Tuason" In%. #as a mere holdin' or investment %ompan& for the %orporation did not involve itself in the development of subdivisions but merel& subdivided its o#n lots and sold them for bi''er profits. It derived its in%ome mostl& from interest" dividends and rental reali8ed from the sale of realt&. b. HH.HH3 in value of the outstandin' sto% of Antonio Tuason" In%." is o#ned b& Antonio Tuason himself. CIR O%on%lusivel& presumedO that #hen the %orporation a%%umulated (instead of distributin' to the shareholders) a surplus of over P3 million from its earnin's in :HB5 up to :HB2" the purpose #as to avoid the imposition of the pro'ressive in%ome tax on its shareholders. Tuason In%. protested the assessment on the ;53 surtax on the 'round that the a%%umulation of surplus profits durin' the &ears in -uestion #as solel& for the purpose of expandin' its business operations as real estate bro er (surplus profits set aside to build

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suffi%ient %apital to %onstru%t an apartment buildin'" %ondo unit" et%). It 4?)I?4 that its purpose #as to evade pa&ment. Do#ever" it #as found out that the %orporation did not reall& use up its surplus profits. It alle'ation that P:.5E! #as spent for the %onstru%tion of an apartment buildin' and P:.BE! for the pur%hase of a %ondominium unit in 5rdaneta @illa'e in :H20 #as R?A5T?4 b& the 4e%laration of Real Propert& on the apartment buildin' #hi%h sho#s that its mar et value is onl& P<;H !" and the Tax 4e%laration on the %ondominium unit #hi%h refle%ts a mar et value of P;H3 ! onl& (total is P BB3"B;0). The enormous dis%repan%& bet#een the alle'ed investment %ost and the de%lared mar et value of these pie%es of real estate #as not denied nor explained b& Tuason. I/ 0$n Tuason is a holdin' %ompan& and$or investment %ompan&" a%%umulated surplus and is liable for ;53 surtax on undue a%%umulation of surplus( C?> R/ CIR1s assessment of a ;53 surtax a'ainst the Antonio Tuason" In%. is reinstated" but onl& on the latterRs unspen! a%%umulated surplus profits of P;"<2H"525.22. The P BB3"B;0 invested in its business operations (apartment and %ondominium unit) is not sub=e%t to the ;53 surtax. :) Tua8on I> a holdin' $ investment %ompan& be%ause it did not involve itself in the development of subdivisions but merel& >594I@I4?4 its o#n lots and sold them for bi''er profits. It derived its in%ome from interest" dividends and rental reali8ed from the sale of realt&. The tou%hstone of liabilit& is the P5RP*>? behind the a%%umulation of the in%ome and )*T the C*)>?I5?)C?> of the a%%umulation. Thus" f ailure ! pa& "ivi"en"s ! s! c/$ l"ers #us! be ) r !$e purp se ) usin' un"is!ribu!e" earnin's an" pr )i!s ) r reas nable nee"s ) !$e business. *!$er;ise, !$e c #pan& ; ul" be liable ) r unreas nable accu#ula!i n ) surplus. In this %ase" it is plain to see that the %ompan&Rs failure to distribute dividends to its sto% holders #as for reasons other than the reasonable needs of the business. ;) Tua8on is liable for the ;53 surtax be%ause HH.H3 in value of the outstandin' sto% of Tua8on is o#ned b& Antonio Tua8on himself. This 'ives the %on%lusive presumption that the purpose of a%%umulated earnin's #as to avoid the in%ome tax of its shareholder. Also" that the amount spent for %onstru%tion of the bld' and amount for pur%hase of the %ondo has a 9IJ 4I>CR?PA)CC sho#s that it #as be&ond the reasonable needs re-uirement. All presu!ptions are in favor of the correctness of petitioner%s assess!ent against the private respondent. It is incu!&ent upon the taxpa#er to prove the contrar#. =nfortunately, the private respondent failed to overcome the presumption of correctness of the CommissionerGs assessment and the presumption that its failure to distribute surplus profits is for the reasonable needs of the business.

C&ana#i" P$ils v CA C&anamid Philippines" In%. is a %orporation or'ani8ed under Philippine la#s and a #holl& o#ned subsidiar& of Ameri%an C&anamid Co. based in Eaine" 5>A. It is en'a'ed in the manufa%ture of pharma%euti%al produ%ts and %hemi%als" a #holesaler of imported finished 'oods" and an importer$indentor. CIR sent an assessment letter to C&anamid and demanded the pa&ment of defi%ien%& in%ome tax of P::H ! for taxable &ear :H2:. C&anamid protested the assessments parti%ularl&" (:) the ;53 >urtax Assessment of P3"BB<"2LB.50, (;) :H2: 4efi%ien%& In%ome Assessment of P::H"2:B.00, and :H2: 4efi%ien%& Per%enta'e Assessment of P2"2<L.B;.

The CIR in a letter addressed to >J@ W Co." refused to allo# the %an%ellation of the assessment noti%es and rendered its resolution and ruled that the said availment does not result in %an%ellation of assessments. C&anamid appealed to CTA" %laimin' that CIRRs assessment representin' the ;53 surtax on its a%%umulated earnin's for the &ear :H2: had no le'al basis for the follo#in' reasons/ o (a) C&anamid a%%umulated its earnin's and profits for reasonable business re-uirements to meet #or in' %apital needs and retirement of indebtedness o (b) C&anamid is a #holl& o#ned subsidiar& of Ameri%an C&anamid Compan&" a %orporation or'ani8ed under the la#s of the >tate of Eaine" in the 5nited >tates of Ameri%a" #hose shares of sto% are listed and traded in )e# Cor >to% ?x%han'e. o TD5>" there #ere no individual shareholder in%ome taxes b& C&anamidRs a%%umulation of earnin's and profits" instead of distribution of the same. CTA denied the petition" sa&in' that C&anamid is still liable. I/ 0$n the %orporation liable is for the a%%umulated earnin's tax for the &ear :H2: R/ C?>" %orp is liable. :) >e%. ;5 of the old )IRC of :HBB states that if an& %orporation is formed for the purpose of preventin' the imposition of the tax upon its shareholders $ members or the shareholders $ members of another %orporation" throu'h the medium of permittin' its 'ains and profits to a%%umulate instead of bein' divided or distributed" there is levied and assessed a'ainst su%h %orporation" for ea%h taxable &ear" a tax e-ual to ;53 of the undistributed portion of its a%%umulated profits or surplus. This shall be in A44ITI*) to the tax imposed b& >e%;<" and shall be %omputed" %olle%ted and paid in the same manner and sub=e%t to the same provisions of la#" in%ludin' penalties" as that tax. T$e pr visi n "isc ura'e" !a% av i"ance !$r u'$ c rp ra!e surplus accu#ula!i n. 0hen %orporations do not de%lare dividends" in%ome taxes are not paid on the unde%lared dividends re%eived b& the shareholders. T$e !a% n i#pr per accu#ula!i n ) surplus is essen!iall& a penal!& !a% desi'ned to c #pel %orporations to distribute earnin's so that the said earnin's b& shareholders %ould" in turn" be taxed. The amendator& provision of >e%tion ;5 of the :HBB )IRC" #hi%h #as P4 :B3H" enumerated the %orporations e%e#p! from the imposition of improperl& a%%umulated tax/ (a) ban s, (b) non.ban finan%ial intermediaries, (%) insuran%e %ompanies, and (d) %orporations or'ani8ed primaril& and authori8ed b& the Central 9an of the Philippines to hold shares of sto% s of ban s. C&anamid does n ! )all amon' those exempt %lasses. 9esides" the rule on enumeration is that the express mention of one person" thin'" a%t" or %onse-uen%e is %onstrued to ex%lude all others.b ;) C&anamid CA))*T rel& on the 9AR4ADF formula" #$% allo#ed retention" as #or in' %apital reserve" suffi%ient amounts of li-uid assets to %arr& the %ompan& throu'h one operatin' %&%le. In this %ase" it %ontended that it had %onsiderable li-uid funds based on the ;/;:/: ratio of %urrent assets to %urrent liabilities. 5sin' this formula" C&anamid needed at least P33 . as #or in' %apital. As of :H2:" its li-uid asset #as onl& P;5 ! so it still had a defi%it of about PB !. Therefore" the PH ! a%%umulated in%ome as of :H2: ma& be validl& a%%umulated to in%rease its #or in' %apital for the su%%eedin' &ear.

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D*0?@?R" the %ompanies #here the O9ardahlO formula #as applied" had pera!in' c&cles #uc$ s$ r!er !$an !$a! ) C&ana#i" . o In )tlas Tool Co." .nc" vs. C.3";0 %ompan&1s operatin' %&%le #as onl& 3.33 months or ;B.B53 of the &ear o In Cataphote Corp. of 8ississippi vs. =nited &tates the %orporationRs operatin' %&%le #as onl& 5L.2B da&s" or :5.523 of the &ear. o In the %ase of C&anamid" the operatin' %&%le #as ;22.35 da&s" or B2.553 of a &ear" refle%tin' that petitioner #ill need suffi%ient li-uid funds" of at least three -uarters of the &ear" to %over the operatin' %osts of the business. As ) 6=N6 !$e ; r/in' capi!al ) C&ana#i" ;as P@L/P, r # re !$an !;ice i!s curren! liabili!ies. Plus" the #or in' %apital #as expe%ted to in%rease further #hen more funds #ere 'enerated from the su%%eedin' &earRs sales. There #as )* R?A>*) to expe%t a O#or in' %apital defi%itO #hi%h %ould have ne%essitated an in%rease in #or in' %apital" as rationali8ed b& C&anamid.

,. Ta%3e%e#p! c rp ra!i ns CIR v Sinc E"uca!i nal C rp In :H<H" @i%ente J. >in%o (>in%o) established and operated an edu%ational institution no#n as the Aoundation Colle'e of 4uma'uete. In :H5:" in vie# of the re-uirement of the 4epartment of ?du%ation that as far a pra%ti%able" s%hools and %olle'es re%o'ni8ed b& the 'overnment should be in%orporated" >in%o and the members of his immediate famil& or'ani8ed a non. sto% %orporation no#n as the 1.G. Sinc E"uca!i nal Ins!i!u!i n Inc., #hi%h #as %apitali8ed b& >in%o and his famil&. This %orporation %ontinued the operations of the Aoundation Colle'e of 4uma'uete. >in%o a%ted as %hairman of the board of dire%tors" president of the %olle'e" and as a tea%her" but did not %olle%t his salar&. The %olle'e derived its in%ome solel& from the tuition fees paid b& students enrolled and reali8ed profits out of its operation but did not distribute an& dividend or profit to its sto% holders. An investi'ation %ondu%ted b& the 9IR revealed that the %olle'e reali8ed a taxable net in%ome for the &ear :H<H and for the &ear :H50. The in%ome tax returns of the %olle'e for the &ears :H5: to :H53 have &et been verified but the %olle'e reported taxable net profits in :H5:" losses in :H5;" and profits in :H53. The Colle%tor of Internal Revenue (CIR) assessed a'ainst the %olle'e an in%ome tax for the &ears :H50 and :H5:" #hi%h the %olle'e paid. ; &rs later" the %orporation %ommen%ed an a%tion in the CAI of )e'ros *riental for the refund of the amounts paid" %laimin' that it is exempt from the pa&ment of the in%ome tax be%ause it is or'ani8ed and maintained ex%lusivel& for the edu%ational purposes and no part of its net in%ome inures to the benefit of an& private individual. CIR said that part of the net in%ome a%%umulated b& the %orporation inured to the benefit of >in%o" president and founder of the %orporation" and therefore it is not entitled to the exemption pres%ribed b& the la#. I/ 0$n the %orporation should be exempt from pa&ment of in%ome taxes. R/ C?>" the %orp is a non.profit institution.

Pa&#en! ) ,ODERATE salaries ! !$ se ;$ ; r/ ) r a sc$ l r c lle'e as a re#unera!i n ) r !$eir services is NOT c nsi"ere" as "is!ribu!i n ) pr )i! as ; ul" #a/e !$e sc$ l ne c n"uc!e" ) r pr )i!. In this %ase" sin%e its or'ani8ation" the %orp never distributed an& dividend or profit to its sto% holders. Althou'h part of its in%ome #ent to the pa&ment of its tea%hers or professors and to the other expenses of the %olle'e" this #as incident to an edu%ational institution. >till" none of the in%ome has ever been %hanneled to the benefit of an& individual sto% holder. It #as unfair to %on%lude that part of the in%ome of the %orporation as an institution inured to the benefit of one of its sto% holders simpl& be%ause part of the in%ome #as %arried in its boo s as a%%umulated salaries of its president and tea%her. Eu%h less %an it be said that the pa&ments made b& the %olle'e to the Communit& Publishers" In%. redounded to the personal benefit of >in%o simpl& be%ause he is one of its sto% holders. 8ayor and Common Council of Borough of 9rinceton vs. &tate Board of Taxes B )ssessments, et al. The principal officer of the school was formerly its owner and principal and such principal he was given a salary for his services. The court held that school is not conducted for profit merely because moderate salaries were paid to the principal and to the teachers. 7f course, it is not denied that the corporation charges tuition fees and other fees for the different services it renders to the students and in fact it is its only source of income, but such fact does not in itself make the school a profit#making enterprise that would place it beyond the purview of the law. ?ver& responsible or'ani8ation must be so run as to" at least" insure its existen%e" b& operatin' #ithin the limits of its o#n resour%es" espe%iall& its re'ular in%ome. In other #ords" it should al#a&s strive" #henever possible" to have a surplus. 5pon the other hand" the CIR1s pretense #ould limit the benefits of the exemption" under said se%tion ;B (e)" to institutions #hi%h do not hope" or propose" to have su%h surplus. 5nder this vie#" the exemption #ould appl& onl& to s%hools #hi%h are on the ver'e of ban rupt%&" for U unli e the 5nited >tates" #here a substantial number of institutions of learnin' are dependent upon voluntar& %ontributions and still en=o& e%onomi% stabilit&" su%h as Darvard" the trust fund of #hi%h has been steadil& in%reasin' #ith the &ears U there are" and there have al#a&s been" ver& fe# edu%ational enterprises in the Philippines #hi%h are supported b& donations" and these or'ani8ations usuall& have a ver& pre%arious existen%e. The final result of the CIR1s %ontention" if adopted" #ould be to dis%oura'e the establishment of %olle'es in the Philippines" #hi%h is pre%isel& the opposite of the ob=e%tive %onsistentl& sou'ht b& our la#s.

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law to the contrary notwithstanding, the re!ire#en! bene)i!s re%eived b& offi%ials and emplo&ees of private firms" #hether individual or %orporate" in a%%ordan%e #ith a reasonable private benefit plan maintained b& the emplo&er s$all be exe!pt fro! all taxes. This provision should be ta en in relation to then >e%tion 5L(b) (no# 53`ba) of the Tax Code" #$% speci)icall& e%e#p!e" e#pl &eeXs !rus!s )r # inc #e !a% . The reason for the %reation of emplo&eesR trusts or benefit plans is to provide e%onomi% assistan%e to emplo&ees upon the o%%urren%e of %ertain %ontin'en%ies" parti%ularl&" old a'e retirement" death" si% ness" or disabilit&. 0hat is more" it is established for their e%clusive bene)i! and for no other purpose. ?mplo&ees1 trusts are exempt in order to en%oura'e the formation and establishment of su%h private Plans for the benefit of laborers and emplo&ees outside of the >o%ial >e%urit& A%t. *ther#ise" taxation of those earnin's #ould result in a diminution a%%umulated in%ome and redu%e #hatever the trust benefi%iaries #ould re%eive out of the trust fund. This #ould run afoul of the ver& intendment of the la#. 4eletion in P4 :H5H of the provisos re'ardin' tax exemption and preferential tax rates under the old la#" therefore" %an not be deemed to extent to emplo&eesR trusts. >aid 4e%ree" bein' a 'eneral la#" %an not repeal b& impli%ation a spe%ifi% provision" >e%tion 5L(b) no# 53 `ba) in relation to RA <H:B 'rantin' exemption from in%ome tax to emplo&eesR trusts.

RETIRE,ENT -ENEFITS, PENSIONS, GRATUITIES, e!c. CIR v CA J6==@H JCF Retirement Plan #as an emplo&eesR trust maintained b& the emplo&er" JCF In%." to provideretirement" pension" disabilit& and death benefits to its emplo&ees. The Plan as submitted #as approved and -ualified as exempt from in%ome tax b& the CIR. In :H2<" JCF made investments and earned interest in%ome from #here :53 tax #as #$held as imposed b& P4 :H5H. JCF thus filed #$ the CIR %laims for refund in the amounts #$held b& Ans%or Capital Investment Corp and Commer%ial 9an of Eanila. JCF said in a letter that it disa'reed #ith the %olle%tion of the :53 final #ithholdin' tax from the interest in%ome as it is an entit& full& exempt from in%ome under RA <H:B in relation to >e%tion 5L(b) of the Tax Code. CIR denied the re-uest so %ase #as elevated to CTA and CTA ruled in favor of JCF. I/ 0$n JCF Plan is exempt from the final #ithholdin' tax on interest in%ome from mone& pla%ements and pur%hase of treasur& bills re-uired b& Pres. 4e%ree )o. :H5H R/ C?>" JCF Plan is exempt. JCF Plan #as -ualified as exempt from in%ome tax b& the Commissioner of Internal Revenue in a%%ordan%e #ith RA <H:B" #$% provides that any provision of

CIR v CA J6==6H ?fren P. Castaneda retired from the 'overnment servi%e as revenue atta%hc in the Philippine ?mbass& in Fondon" ?n'land. 5pon retirement" he re%eived" amon' other benefits" terminal.leave pa& from #$% CIR #ithheld about P:; !" alle'edl& representin' in%ome tax thereon. Castaneda filed a formal #ritten %laim #ith CIR for a refund of the said amount" sa&in' that he %ash e-uivalent of his terminal leave is exempt from in%ome tax. To %ompl& #ith the t#o.&ear pres%riptive period #ithin #hi%h %laims for refund ma& be filed" Castaneda filed #ith the CTA Petition for Revie#" see in' the refund of in%ome tax #ithheld from his terminal leave. CTA ruled in favor of Castaneda and ordered CIR to refund him. CIR thus appealed to >C sa&in' that the terminal.leave pa& is I)C*E? $ part of %ompensation for servi%es rendered. There %an thus be no 6%ommutation of salar&7 #hen a 'overnment retiree applies for terminal leave" be%ause he is not re%eivin' it as salar&. 0hat he applies for is a 6%ommutation of leave %redits.7 Thus" it is taxable. I/ 0$n it terminal leave pa& re%eived b& a 'ov emplo&ee is taxable R/ )*. Terminal leave pa& is )*T sub=e%t to #ithholdin' in%ome tax. Kesus ). 9orromeo v. The Don. Civil >ervi%e Commission/ Ter#inal leave pa& is a RETIRE,ENT -ENEFIT, an" is !$us n ! sub(ec! ! inc #e !a%. Commutation of leave %redits" more %ommonl& no#n as terminal leave" is applied for b& an offi%er or emplo&ee #ho retires" resi'ns or is separated from the servi%e throu'h no fault of his o#n.

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In the exer%ise of sound personnel poli%&" the 'overnment en%oura'es unused leaves to be a%%umulated. The 'overnment re%o'ni8es that for most publi% servants" retirement pa& is al#a&s less than 'enerous if not mea'er and s%rimp&. A modest nest e''" #hi%h the senior %iti8en ma& loo for#ard to" is thus avoided. Terminal leave pa&ments are 'iven not onl& at the same time but also for the same poli%& %onsiderations 'overnin' retirement benefits.

The Chief of the Ainan%e 4ivision li e#ise sou'ht %larifi%ation #ith respe%t to the appli%abilit& of the resolution to emplo&ees of the >upreme Court to those #ho/ o avail of optional retirement o resi'n$ are separated from the servi%e throu'h no fault of their o#n The t#o 'roups mentioned above are also entitled to terminal leave pa& in a%%ordan%e #ith the Revised Admin Code" >e% ;2L.

RE5 RE0UEST OF ATTC. -ERNARDO ?IA.CITA >C passed a resolution re'ardin' the amounts %laimed b& Att&. Tial%ita durin' his retirement. >C said that terminal leave pa& of Att&. Tial%ita re%eived b& virtue of his %ompulsor& retirement %an )?@?R be %onsidered a part of his salar& sub=e%t to the pa&ment of in%ome tax. Rather" it falls under the phraseR !$er si#ilar bene)i!s re%eived b& retirin' emplo&ees and #or ers" #ithin the meanin' of >e%tion : of P4 )o. ;;0 and is thus exempt from the pa&ment of in%ome tax. P4 H25 also ma es it %lear that the ac!ual service is the period of time for #hi%h pa& has been re%eived" e%clu"in' !$e peri " c vere" b& !er#inal leave . CIR throu'h >olJen moved for re%onsideration. >C" ho#ever" denied the ER and held that the mone& value of the a%%umulated leave %redits of Att&. 9ernardo Tial%ita are )*T taxable. >in%e terminal leave is applied for b& an offi%er or emplo&ee #ho has alread& severed his %onne%tion #ith his emplo&er and is no lon'er #or in'" then it follo#s that the terminal leave pa&" #hi%h is the %ash value of his a%%umulated leave %redits" is n l n'er c #pensa!i n ) r services ren"ere" . It CA))*T be vie#ed as salar&. EO 6B>>5 An& offi%er $ 'ov emplo&ee #ho voluntaril& resi'ns or is separa!e" )r # service !$r u'$ n )aul! ) $is ;n and #hose leave benefits are )*T %overed b& spe%ial la#" shall be entitled to the c ##u!a!i n ) all !$e accu#ula!e" vaca!i n an"+ r sic/ leaves ! $is cre"i!, ex%lusive of >aturda&s" >unda&s and holida&s" #ithout limitation as to the number of da&s of va%ation and si% leaves that he ma& a%%umulate. NIRC, Sec @N5 Retirement benefits" pensions and 'ratuities re%eived b& 'ov offi%ials and emplo&ees shall )*T be in%luded in 'ross in%ome. In the %ase of Att&. Tial%ita" he rendered 'overnment servi%e from :HL; to :HH0" until he rea%hed the %ompulsor& retirement a'e of L5 &ears. 5pon his %ompulsor& retirement" he is entitled to the %ommutation of his a%%umulated leave %redits to its mone& value. Compulsor& retirement ma& be %onsidered as a O%ause be&ond the %ontrol of the said offi%ial or emplo&eeO. Conse-uentl&" the amount that he re%eived b& #a& of %ommutation of his a%%umulated leave %redits as a result of his %ompulsor& retirement" or his terminal leave pa&" falls #ithin the enumerated ex%lusions from 'ross in%ome and is therefore not sub=e%t to tax. The terminal leave pa& of Att&. Tial%ita ma& li e#ise be vie#ed as a Oretirement 'ratuit& re%eived b& 'overnment offi%ials and emplo&eesO #hi%h is also another ex%lusion from 'ross in%ome as provided for in the >e% ;2" )IRC. The %ase of Att&. 9ernardo Tial%ita is merel& an administrative matter involvin' an emplo&ee of the >C #ho applied for retirement benefits and #ho -uestioned the dedu%tions on the benefits 'iven to him. Den%e" the resolution applies onl& to emplo&ees of the Kudi%iar&. It %annot be extended to other 'ov emplo&ees be%ause in effe%t" >C #ould be renderin' an advisor& opinion.

INCO,E DERI1ED -C FOREIGN GO1ERN,ENT CIR v ,ITSU-ISHI ,ETA. CORP Atlas Consolidated Einin' entered into a Foan and >ales Contra%t #ith Eitsubishi #here it #as provided that Eitsubishi #ould F?)4 Atlas X;0E for the installation of a ne# %on%entrator for %opper produ%tion. In turn" Atlas #ould >?FF to Eitsubishi all the %opper %on%entrates produ%ed from the ma%hine for the next :5 &ears. Thereafter" Eitsubishi applied for a loan #ith ?ximban of Kapan and other %onsortium of Kapanese ban s so that it %ould %ompl& #ith its obli'ations under the %ontra%t. The total amount of both loans #as X;0E. Approval of the loan b& ?ximban to Eitsubishi #as sub=e%t to the %ondition that Eitsubishi #ould use the amount as loan to Atlas and as %onsideration for importin' %opper %on%entrates from Atlas. Atlas made interest pa&ments in favor of Eitsubishi totalin' P:3E. The %orrespondin' :53 tax on the interest in the amount of P:.HE #as #ithheld and remitted to the Jovernment. >ubse-uentl&" Eitsubishi and Atlas filed a %laim for tax %redit" re-uestin' that the P:.HE be applied a'ainst their existin' tax liabilities on the 'round that the interest earned b& Eitsubishi on the loan #as exempt from tax. The )IRC provides that in%ome re%eived from loans in the Philippines extended b& finan%in' institutions o#ned" %ontrolled" or finan%ed b& forei'n 'overnments are exempt from tax. Eitsubishi and Atlas %laim that the interest earned from the loan falls under the above exemption be%ause Eitsubishi #as merel& a%tin' as an a'ent of ?ximban " #hi%h is a finan%in' institution o#ned" %ontrolled" and finan%ed b& the Kapanese Jovernment. The& alle'e that Eitsubishi #as merel& the %onduit bet#een Atlas and ?ximban " and that the ultimate %reditor #as reall& ?ximban . I5 0$) the interest in%ome from loans extended to Atlas b& Eitsubishi is ex%luded from 'ross in%ome taxation and therefore ex%luded from #ithholdin' tax. R5 )*" interest in%ome is )*T exempt from tax. )IRC provides that in%ome re%eived from loans in the Phils extended b& finan%ial institutions o#ned" %ontrolled or finan%ed b& forei'n 'ovs are exempt from tax. Eitsubishi and Atlas thus %laim that interest in%ome from the loan falls under su%h exemption be%ause Eitsubishi #as merel& an a'ent of ?ximban " a finan%in' institution o#ned"%ontrolled and finan%ed b& the Kap 'ov. D*0?@?R" Eitsubishi #as )*T a mere a'ent of ?ximban . It entered into the a'reement #ith Atlas in its o#n independent %apa%it&. T$e !ransac!i n be!;een ,i!subis$i an" A!las n ne $an", AND ,i!subis$i an" E%i#ban/ n !$e !$er, ;ere separa!e an" "is!inc!. Thus" the interest in%ome of the loan paid b& Atlas to Eitsubishi is entirel& different from the interest in%ome paid b& Eitsubishi to ?ximban . 0hat #as

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sub=e%t of the #ithholdin' tax is not the interest in%ome paid b& Eitsubishi to ?ximban but the interest in%ome earned b& Eitsubishi from the loan to Atlas. >in%e the transa%tion #as bet#een Eitsubishi and Atlas" the exemption that #ould have been appli%able to ?ximban " does not appl&. The interest is therefore not exempt from tax. It is true that under the %ontra%t of loan #ith ?ximban " Eitsubishi a'reed to use the amount as a loan to and in %onsideration for importin' %opper %on%entrates from Atlas" but this onl& proves the =ustifi%ation for the loan as represented b& Eitsubishi #hi%h is a standard ban in' pra%ti%e for evaluatin' the prospe%ts of due repa&ment. Fa#s 'rantin' exemption from tax are %onstrued stri%tissimi =uris a'ainst the taxpa&er and liberall& in favor of the taxin' po#er. 0hile international %omit& is invo ed in this %ase on the nebulous representation that the funds involved in the loans are those of a forei'n 'overnment" s%rupulous %are must be ta en to avoid openin' means to violate our tax la#s. *ther#ise" the mere expedient of havin' Phil %orp enter into a %ontra%t for loans #ith private forei'n entities" #hi%h in turn #ill ne'otiate independentl& #ith their 'overnments" %ould be availed to ta e advanta'e of the tax exemption la# under dis%ussion.

0. DEDUCTIONS CIR v ISA-E.A CU.TURA. CORP Isabela Cultural Corporation (ICC)" a domesti% %orp" re%eived from the CIR an assessment letter demandin' pa&ment of the amounts of P333 ! and P< ! as defi%ien%& in%ome tax and expanded #ithholdin' tax in%lusive of sur%har'e and interest" respe%tivel&" for the :H2L. ICC re-uested re%onsideration in a letter. Do#ever" it re%eived a final noti%e before sei8ure demandin' pa&ment of the amounts stated in the said noti%es. ICC thus filed a petition for revie# #$ CTA. CTA rendered a de%ision %an%elin' and settin' aside the assessment noti%es issued a'ainst ICC. It held that the %laimed dedu%tions for professional and se%urit& servi%es #ere properl& %laimed b& ICC in :H2L be%ause it #as onl& in the said &ear #hen the bills demandin' pa&ment #ere sent to ICC. Den%e" even if some of these professional servi%es #ere rendered to ICC in :H2< or :H25" it %ould not de%lare the same as dedu%tion for the said &ears as the amount thereof %ould not be determined at that time. CT) also held that .CC did not understate its interest income on the sub,ect promissory notes. .t found that it was the B.3 which made an overstatement of said income when it compounded the interest income receivable by .CC from the promissory notes of 3ealty .nvestment, .nc., despite the absence of a stipulation in the contract providing for a compounded interest+ nor of a

circumstance, like delay in payment or breach of contract, that would ,ustify the application of compounded interest. CA affirmed this. I/ 0$n CA %orre%tl&/ (:) sustained the dedu%tion of the expenses for professional and se%urit& servi%es from ICC1s 'ross in%ome, and (;) held that ICC did not understate its interest in%ome from the promissor& notes of Realt& Investment" In%, and that ICC #ithheld the re-uired :3 #ithholdin' tax from the dedu%tions for se%urit& servi%es. R/ C?>. The re-uisites for the dedu%tibilit& of ordinar& and ne%essar& trade" business" or professional expenses" li e expenses paid for le'al and auditin' servi%es" are/ o (a) the expense must be ordinar& and ne%essar&, o (b) it must have been paid or in%urred durin' the taxable &ear, o (%) it must have been paid or in%urred in %arr&in' on the trade or business of the taxpa&er, and o (d) it must be supported b& re%eipts" re%ords or other pertinent papers A%%ountin' methods for tax purposes %omprise a set of rules for determinin' #hen and ho# to report in%ome and dedu%tions. In the instant %ase" the a%%ountin' method used b& ICC is the accrual #e!$ ". The a%%rual method relies upon the taxpa&er1s ri'ht to re%eive amounts or its obli'ation to pa& them" in opposition to a%tual re%eipt or pa&ment" #hi%h %hara%teri8es the %ash method of a%%ountin'. Amounts of in%ome a%%rue #here the ri'ht to re%eive them be%ome fixed" #here there is %reated an enfor%eable liabilit&. >imilarl&" liabilities are a%%rued #hen fixed and determinable in amount" #ithout re'ard to indetermina%& merel& of time of pa&ment. Aor a taxpa&er usin' the a%%rual method" the determinative -uestion is" #hen do the fa%ts present themselves in su%h a manner that the taxpa&er must re%o'ni8e in%ome or expense] The a%%rual of in%ome and expense is permitted #hen the all.events test has been met. This test re-uires/ (:) fixin' of a ri'ht to in%ome or liabilit& to pa&, and (;) the availabilit& of the reasonable a%%urate determination of su%h in%ome or liabilit&. The propriet& of an a%%rual must be =ud'ed b& the fa%ts that a taxpa&er ne#" or %ould reasonabl& be expe%ted to have no#n" at the %losin' of its boo s for the taxable &ear. A%%rual method of a%%ountin' presents lar'el& a -uestion of fa%t, su%h that the taxpa&er bears the burden of proof of establishin' the a%%rual of an item of in%ome or dedu%tion. In this %ase" the expenses for professional fees %onsist of expenses for le'al and auditin' servi%es. The expenses for le'al servi%es pertain to the :H2< and :H25 le'al and retainer fees of the la# firm 9en'8on Tarra'a )ar%iso Cudala Pe%son A8%una W 9en'son" and for reimbursement of the expenses of said firm in %onne%tion #ith ICC1s tax problems for the &ear :H2<. As testified b& the Treasurer of ICC" the firm has been its %ounsel sin%e the :HL01s. Arom the nature of the %laimed dedu%tions and the span of time durin' #hi%h the firm #as retained" ICC %an be expe%ted to have reasonabl& no#n the retainer fees %har'ed b& the firm as #ell as the %ompensation for its le'al servi%es. The failure to determine the exa%t amount of the expense durin' the taxable &ear #hen the& %ould have been

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%laimed as dedu%tions %annot thus be attributed solel& to the dela&ed billin' of these liabilities b& the firm. Aor one" ICC" in the exer%ise of due dili'en%e %ould have in-uired into the amount of their obli'ation to the firm" espe%iall& so that it is usin' the a%%rual method of a%%ountin'. Aor another" it %ould have reasonabl& determined the amount of le'al and retainer fees o#in' to its familiarit& #ith the rates %har'ed b& their lon' time le'al %onsultant. In the same vein" the professional fees of >J@ W Co. for auditin' the finan%ial statements of ICC for the &ear :H25 %annot be validl& %laimed as expense dedu%tions in :H2L. This is so be%ause ICC failed to present eviden%e sho#in' that even #ith onl& Oreasonable a%%ura%&"O as the standard to as%ertain its liabilit& to >J@ W Co. in the &ear :H25" it %annot determine the professional fees #hi%h said %ompan& #ould %har'e for its servi%es. ICC thus failed to dis%har'e the burden of provin' that the %laimed expense dedu%tions for the professional servi%es #ere allo#able dedu%tions for the taxable &ear :H2L

CIR v GENERA. FOODS JPHI.SH INC. Jeneral Aoods In%." #hi%h is en'a'ed in the manufa%ture of bevera'es su%h as 6Tan'"7 6Calumet7 and 6Qool.Aid"7 filed its in%ome tax return for the fis%al &ear endin' Aebruar& ;2" :H25. In said tax return" JenAoods %laimed as dedu%tion" amon' other business expenses" the amount of PHE! for media advertisin' for 6Tan'.7 CIR disallo#ed 503 or P<E! of the dedu%tion and assessed the %orp a defi%ien%& in%ome taxes in the amount of P;E!. Corp filed an ER but #as denied so it appealede to CTA. CTA dismissed the appeal" so %orp filed a petition for revie# #$ CA. CA reversed CTA de%ision" rulin' in favour of %orp. I/ 0$n the sub=e%t media advertisin' expense for 6Tan'7 in%urred b& respondent %orporation #as an ordinar& and ne%essar& expense full& dedu%tible under the )ational Internal Revenue Code ()IRC) R/ )*" it is )*T 4?45CTI9F?. 4edu%tions for in%ome tax purposes parta e of the nature of tax exemptions, hen%e" if tax exemptions are stri%tl& %onstrued" then dedu%tions must also be stri%tl& %onstrued. >e%tion 3< (A) (:)" formerl& >e%tion ;H (a) (:) (A)" of the )IRC provides that there shall be allo#ed as dedu%tion from 'ross in%ome all ordinar& and ne%essar& expenses paid or in%urred durin' the taxable &ear in %arr&in' on" or #hi%h are dire%tl& attributable to" the development" mana'ement" operation and$or %ondu%t of the trade" business or exer%ise of a profession. >impl& put" to be dedu%tible from 'ross in%ome" the sub=e%t advertisin' expense must %ompl& #ith the follo#in' re-uisites/

(a) the expense must be ordinar& and ne%essar& (b) it must have been paid or in%urred durin' the taxable &ear, (%) it must have been paid or in%urred in %arr&in' on the trade or business of the taxpa&er, and o (d) it must be supported b& re%eipts" re%ords or other pertinent papers. The parties are in a'reement that the sub=e%t advertisin' expense #as paid or in%urred #ithin the %orrespondin' taxable &ear and #as in%urred in %arr&in' on a trade or business. Den%e" it #as ne%essar&. Do#ever" their vie#s %onfli%t as to #hether or not it #as ordinar&. To be dedu%tible" an advertisin' expense should not onl& be ne%essar& but also ordinar&. These t#o re-uirements must be met. There is &et to be a %lear.%ut %riteria or fixed test for determinin' the reasonableness of an advertisin' expense. There bein' no hard and fast rule on the matter" the ri'ht to a dedu%tion depends on a number of fa%tors. In the %ase at bar" the PHE! %laimed as media advertisin' expense for 6Tan'7 alone #as almost one.half of its total %laim for 6mar etin' expenses.7 Aside from that" %orporation also %laimed P;E! as 6other advertisin' and promotions expense7 and another P:E! for %onsumer promotion. Aurthermore" the sub=e%t PHE! media advertisin' expense for 6Tan'7 #as almost double the amount of %orporation1s P<E! 'eneral and administrative expenses. The sub=e%t expense for the advertisement of a sin'le produ%t is inordinatel& lar'e. Advertisin' is 'enerall& of t#o inds/ (:) advertisin' to stimulate the current sale of mer%handise or use of servi%es and (;) advertisin' desi'ned to stimulate the future sale of mer%handise or use of servi%es. The se%ond t&pe involves expenditures in%urred" in #hole or in part" to %reate or maintain some form of 'ood#ill for the taxpa&er1s trade or business or for the industr& or profession of #hi%h the taxpa&er is a member. If the expenditures are for the advertisin' of the first ind" then" ex%ept as to the -uestion of the reasonableness of amount" there is no doubt su%h expenditures are dedu%tible as business expenses. If" ho#ever" the expenditures are for advertisin' of the se%ond ind" then normall& the& should be spread out over a reasonable period of time. In this %ase" the sub=e%t advertisin' expense #as of the se%ond ind. )ot onl& #as the amount sta''erin', the respondent %orporation itself also admitted" in its letter protest to the Commissioner of Internal Revenue1s assessment" that the sub=e%t media expense #as in%urred in order to prote%t the %orporation1s brand fran%hise. The %orporation1s venture to prote%t its brand fran%hise #as tantamount to efforts to establish a reputation. This #as a in to the a%-uisition of %apital assets and therefore expenses related thereto #ere not to be %onsidered as business expenses but as %apital expenditures. o o o

AGUINA.DO v CIR A'uinaldo Industries Corp. #as en'a'ed in t#o lines of business/ the manufa%ture of fishin' nets" handled b& its Fis$ Ne! Divisi n" and the manufa%ture of furniture" #hi%h in turn #as handled b& its Furni!ure Divisi n. Aor a%%ountin' purposes" ea%h division ept separate boo s of a%%ounts as re-uired b& the 4epartment of Ainan%e. The net in%omes for the Aish )et 4ivision and the Aurniture 4ivision #ere %omputed separatel&.

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A'uinaldo Industries had previousl& a%-uired land in Euntinlupa for its fishin' net fa%tor&" but #hen it a%-uired more suitable land for the purpose" it sold the Euntinlupa propert& for a profit" #hi%h #as entered in its boo s as mis%ellaneous in%ome as distin'uished from its tax exempt in%ome. In :H5:" A'uinaldo Industries filed separate returns for its fishin' and furniture divisions. The 9IR investi'atin' offi%ers found that AIC Aish )et dedu%ted from its 'ross in%ome the amount of L: as additional renumeration paid to the offi%ers of A'uinaldo Industries. The examiner found that this mone& #as ta en from the sale of the Euntinlupa propert&" an isolated transa%tion not in the usual %ourse of business. Thus" the examiner re%ommended that the amount be disallo#ed as a dedu%tion. AIC %ontends that the mone& #as paid as an allo#an%e or bonus to its offi%ers as provided in its b&.la#s. CTA upheld the CIR1s de%ision and held A'uinaldo Industries liable for :B in ba% taxes. AIC ar'ues that the profit derived from the sale of the Euntinlupa land is not taxable for it is tax exempt under RA H0: as a ne# and ne%essar& industr&. I/ 0$n the bonus 'iven to A'uinaldo1s offi%ers #as an ordinar& and ne%essar& business expense and therefore dedu%tible R/ )o" it #as not dedu%tible. The re%ords sho# that the sale effe%ted throu'h a bro er #ho 'ot a %ommission and there is no eviden%e of an& servi%e rendered b& the offi%er. In %omputin' net in%ome" there shall be allo#ed as dedu%tions 6all ordinar& and ne%essar& expenses paid or in%urred durin' the taxable &ear in %arr&in' on an& trade or business in%ludin' reasonable allo#an%es for personal servi%es a%tuall& in%urred.7 In the basis of the for'oin' standard" the bonus %annot be deemed as a dedu%tible expense for tax purposes" even thou'h the sale %ould be %lassified as a transa%tion for %arr&in' on the trade or business of the %orporation. There is no a%tual eviden%e that the offi%ers a%tuall& rendered some servi%e in the perfe%tion of the sale Aor bonuses to be dedu%tible it must ans#er t#o -uestions/ o Airst" has personal servi%e a%tuall& been rendered b& the offi%ers] o >e%ond" if so" is it a reasonable allo#an%e therefore] In this %ase" the shares in the profit #ere extraordinar& and unusual expenses and as su%h" %annot be deemed as ne%essar& expenses. A'uinaldo #as also held liable to pa& sur%har'e and interest on the ba% taxes.

Atlas still appealed to the CTA and assailed the disallo#an%e of the follo#in' items as dedu%tible from their 'ross in%ome/ transfer a'ent1s fee" s! c/$ l"er8s rela!i n service )ee, 5> sto% listin' expenses" sui! e%penses and pr visi n ) r c n!in'encies. The CTA allo#ed the aforementioned dedu%tions except for the items titled sto% holder1s relation servi%es and suit expenses (onl& partial disallo#an%e" from P;3 to P:3 to finall&" as dedu%ed b& the CTA" PL ). >in%e the exemption #as onl& 'ood until the first -uarter of :H52" ^ of the net taxable in%ome of petitioner is sub=e%t to in%ome tax. Den%e" it assessed ^ of Atlas1 promotion fees (amountin' to P;5 for the #hole &ear) #ith in%ome tax. 9oth parties appealed to the >C re'ardin' the de%ision of the CTA. I$ R/ :. 4ere !$e e%penses pai" ) r !$e services ren"ere" b& a PR )ir# ! be c nsi"ere" all ;able "e"uc!i n as business e%penseM )*" it is %onsidered a %apital expenditure. This is based on 5> =urispruden%e #here it #as held that expenses in%urred to %reate a favorable ima'e does )*T ma e it a business expense. Test of dedu%tibilit&/ :) expense must be ordinar& W ne%essar& ;) it must be paid or in%urred n %arr&in' on a trade or business 3) it must be proven b& eviden%e ;. 4as !$e US s! c/ lis!in' )ee ! be c nsi"ere" all ;able "e"uc!i nM C?>" be%ause it is made annuall& to the sto% ex%han'e for the privile'e of havin' its sto% listed. It is therefore ordinar& W ne%essar&. An expense is ne%essar& . #hen it is appropriate W helpful in the development of the taxpa&erRs business. It is ordinar& . #hen it is normal in relation to the business of the taxpa&er. 9ut there is no hard W fast rule on this. I)T?)TI*) is also important 3. 4ere sui! e%penses ! be c nsi"ere" all ;able "e"uc!i nM )*"liti'ation expenses in%urred in defense or prote%tion of title are CAPITAF in nature and not dedu%tible. It is %onsidered a part of the %ost of the propert&.

AT.AS CONSO.IDATED ,INING K DE1 CORP v CIR Atlas is a minin' %ompan& and CIR assessed it for defi%ien%& in%ome taxes of about P500 ! in :H5B and P;00 ! in :H52. This #as based on an understandin' that onl& 'old mines #ere tax.exempt (RA H0H). Atlas protested and as ed for its re%onsideration. Fater" a rulin' #as issued b& the >e%retar& of Ainan%e" #ho %larified that the exemption in RA H0H applied to all mines" not =ust 'old mines. The CIR re%omputed the assessment. It eliminated the P5<L defi%ien%& and redu%ed the P;:5 defi%ien%& to P3H .

ROXAS v CTA Antonio" ?duardo and Kose formed a partnership" Roxas & Compania" to mana'e the :H"000 he%tares a'ri%ultural lands in )asu'bu" 9atan'as" a residential lot in Ealate" Eanila and shares of sto% s in different %orporations a%-uired from their an%estors. After the 00II" the Jovernment persuaded the Roxas brothers and a'reed to sell :3"500 he%tares of their propert& in 9atan'as to be distributed b& the 'overnment to the a%tual o%%upants as part of the 'overnment1s land reform pro'ram" for P;"0BH"0<2.<B plus P300"000.00 for surve& and subdivision expenses. Do#ever" the 'overnment did not have enou'h funds to pa& them. >o the& ma e arran'ement for the Rehabilitation Ainan%e Corp. to advan%e :.5E as loan #ith the land as %ollateral. Roxas & Cia. #ill then pa& its loan from the pro%eeds of the &earl& amorti8ations paid b& the farmers. Antonio and ?duardo 'ot married" leavin' Kose to sta& in the house for #hi%h he paid rentals to Roxas & Cia. the amount of P2000$&r. The CIR assessed the %ompan& defi%ien%ies in real estate dealer1s tax on the house rentals from Kose" se%urities dealer1s tax from profits from the pur%hase and sale of se%urities and the unreported net profits from the sale of the 9atan'as Fand. It also disallo#ed dedu%tions %laimed b& the brothers. Roxas protested the assessment. Issues/ :. 0$) Roxas & Cia. is liable for pa&ment of fixed real estate dealer1s tax] C?>

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0$) the profit derived from the sale of 9atan'as land %onsidered an ordinar& 'ain :003 taxable])* 3. 0$) the expenses %laimed %an be in%luded as dedu%tions] R/ The Roxas & Cia. is liable to pa& fixed tax as real estate dealer from the rentals of Kose but the 9atan'as land is %onsidered a %apital asset 503 taxable onl&. The %ontributions to the Eanila Poli%e trust fund #as allo#ed as dedu%tions. The Christmas funds to Pasa& Poli%e" Pasa& Aireman" 9a'uio Poli%e #ere not allo#ed as dedu%tions. As #ell as the %ontributions to %ivi% or'." *ur lad& of Aatima Chapel.

Ra!i nale5 :. >e%tion :H< of the Tax Code" in %onsiderin' as real estate dealers o#ners of real estate re%eivin' rentals of at least P3"000.00 a &ear" does not provide an& -ualifi%ation as to the persons pa&in' the rentals. V. OReal estate dealerO in%ludes an& person en'a'ed in the business of bu&in'" sellin'" ex%han'in'" leasin' or rentin' propert& on his o#n a%%ount as prin%ipal and holdin' himself out as a full or part.time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year/ . ..7. ;. The sale of the 9atan'as land is onl& an isolated transa%tion and it #as done at the re-uest of the 'overnment for la% of funds to pa& the said propert&. The Euni%ipalit& of )asu'bu even passed a resolution expressin' 'ratitude to the Roxas & Cia. 7In fine$ Roxas # Cia. cannot &e considered a real estate dealer for the sale in 5uestion. 6ence$ pursuant to -ection 78 of the Tax Code the lands sold to the far!ers are capital assets$ and the gain derived fro! the sale thereof is capital gain$ taxa&le onl# to the extent of *9: .7 3. 4edu%tions must be proven b& the taxpa&er to be reasonable" ordinar& and ne%essar& and must be in%urred in %onne%tion to the business. Ti% ets for ban-uet in Donor of >er'io *smena ( no %onne%tion to the business Civi% Jroups (or'ani8ed b& Derald) for need& ( Derald not a %orporation but an asso%iation for %harit& Contributions (*ur Fad& of Aatima at A?5) ( A?5 'ives dividends and Aatima has not sho#n to belon' to Chur%h A %ontribution to the 'overnment entit& is valid as dedu%tions if used ?GCF5>I@?FC for publi% purposes. Christmas Aunds (Pasa& W 9a'uio Poli%e" Pasa& Aireman) ( )ot for publi% purpose" 'ifts to families of publi% offi%ials Contributions (Eanila Poli%e Trust Aund) ( intended to be used for publi% purpose ?A,ORA v CIR Eariano Tamora" o#ner of the 9a& @ie# Dotel and Aarma%ia Tamora" Eanila" filed his in%ome tax returns the &ears :H5: and :H5;. The Colle%tor of Internal Revenue found that he failed to file his return of the %apital 'ains derived from the sale of %ertain real properties and %laimed dedu%tions #hi%h #ere not allo#able. The %olle%tor re-uired him to pa& the defi%ien%& in%ome tax for the &ears :H5: and :H5;. *n appeal b& Tamora" the CTA modified the de%ision appealed from and ordered him to pa& the redu%ed total sum of P30";52.00 (P;;"H20.00 and PB";B2.00" as defi%ien%& in%ome tax for the &ears :H5: and :H5;" respe%tivel&)" pursuant to se%tion 5:(e)" Int. Revenue Code. 0ith %osts a'ainst

petitioner. Davin' failed to obtain a re%onsideration of the de%ision" Eariano Tamora appealed. It is alle'ed b& Eariano Tamora that the CTA erred in disallo#in' P:0"<B2.50 as promotion expenses in%urred b& his #ife for the promotion of the 9a& @ie# Dotel and Aarma%ia Tamora. De %ontends that the #hole amount of P;0"H5B.00 as promotion expenses in his :H5: in%ome tax returns" should be allo#ed and not merel& one.half of it" on the 'round that" #hile not all the itemi8ed expenses are supported b& re%eipts" the absen%e of some supportin' re%eipts has been suffi%ientl& and satisfa%toril& established. Aor the said amount #as spent b& Ers. ?speran8a A. Tamora (#ife of Eariano)" durin' her travel to Kapan and the 5nited >tates to pur%hase ma%hiner& for a ne# Ti i.Ti i plant" and to observe hotel mana'ement in modern hotels. The CTA" ho#ever" found that for said trip Ers. Tamora obtained onl& the sum of P5"000.00 from the Central 9an and that in her appli%ation for dollar allo%ation" she stated that she #as 'oin' abroad on a %ombined medi%al and business trip" #hi%h fa%ts #ere not denied b& Eariano Tamora. )o eviden%e had been submitted as to #here Eariano had obtained the amount in ex%ess of P5"000.00 'iven to his #ife #hi%h she spent abroad. )o explanation had been made either that the statement %ontained in Ers. TamoraRs appli%ation for dollar allo%ation that she #as 'oin' abroad on a %ombined medi%al and business trip" #as not %orre%t. The alle'ed expenses #ere not supported b& re%eipts. Ers. Tamora %ould not even remember ho# mu%h mone& she had #hen she left abroad in :H5:" and ho# the alle'ed amount of P;0"H5B.00 #as spent. Issue5 0hether the CTA erred in (:) disallo#in' P:0"<B2.50" as promotion expenses in%urred b& his #ife for the promotion of the 9a& @ie# Dotel and Aarma%ia Tamora (#hi%h is M of P;0"H5B.00" supposed business expenses), (;) disallo#in' 3.M3 per annum as the rate of depre%iation of the 9a& @ie# Dotel 9uildin' Hel"5 Petition is dismissed. 4e%ision appealed from is affirmed.

Ra!i 5 >e%tion 30" of the Tax Code" provides that in %omputin' net in%ome" there shall be allo#ed as dedu%tions all the ordinar& and ne%essar& expenses paid or in%urred durin' the taxable &ear" in %arr&in' on an& trade or business o >in%e promotion expenses %onstitute one of the dedu%tions in %ondu%tin' a business" same must testif& these re-uirements. Claim for the dedu%tion of promotion expenses or entertainment expenses must also be substantiated or supported b& re%ord sho#in' in detail the amount and nature of the expenses in%urred. o Considerin' that the appli%ation of Ers. Tamora for dollar allo%ation sho#s that she #ent abroad on a %ombined medi%al and business trip" not all of her expenses %ame under the %ate'or& of ordinar& and ne%essar& expenses, part thereof %onstituted her personal expenses. o There havin' been no means b& #hi%h to as%ertain #hi%h expense #as in%urred b& her in %onne%tion #ith the business of Eariano Tamora and #hi%h #as in%urred for her personal benefit" the Colle%tor and the CTA in their de%isions" %onsidered 503 of the said amount as business expenses and the other 503" as her personal expenses. The allo%ation is ver& fair to Eariano Tamora" there havin' been no re%eipt #hatsoever" submitted to explain the alle'ed business expenses" or proof of the %onne%tion #hi%h said expenses had to the business or the reasonableness. 0hile in situations li e the present" absolute %ertaint& is usuall& no possible" the CTA should ma e as %lose an approximation as it %an" bearin' heavil&" if it %hooses" upon the taxpa&er #hose inexa%tness is of his o#n ma in'.

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Representation expenses fall under the %ate'or& of business expenses #hi%h are allo#able dedu%tions from 'ross in%ome" if the& meet the %onditions pres%ribed b& la#" parti%ularl& se%tion 30 (a) `:a" of the Tax Code, that to be dedu%tible/ o 9usiness expenses must be ordinar& and ne%essar& expenses paid or in%urred in %arr&in' on an& trade or business. o Those expenses must also meet the further test of reasonableness in amount. o That #hen some of the representation expenses %laimed b& the taxpa&er #ere eviden%ed b& vou%hers or %hits" but others #ere #ithout vou%hers or %hits" do%uments or supportin' papers. o There is no more than oral proof to the effe%t that pa&ments have been made for representation expenses alle'edl& made b& the taxpa&er and about the 'eneral nature of su%h alle'ed expenses. o A%%ordin'l&" it is not possible to determine the a%tual amount %overed b& supportin' papers and the amount #ithout supportin' papers" the %ourt should determine from all available data" the amount properl& dedu%tible as representation expenses. o In vie# hereof" the CTA did not %ommit error in allo#in' as promotion expenses of Ers. Tamora %laimed in Eariano TamoraRs :H5: in%ome tax returns" merel& one.half. Petitioner Eariano Tamora alle'es that the CTA erred in disallo#in' 3.M3 per annum as the rate of depre%iation of the 9a& @ie# Dotel 9uildin' but onl& ;.M3. In =ustif&in' depre%iation dedu%tion of 3.M3" Eariano Tamora %ontends that (:) the ?rmita 4istri%t" #here the 9a& @ie# Dotel is lo%ated" is no# be%omin' a %ommer%ial distri%t, (;) the hotel has no room for improvement, and (3) the %han'in' modes in ar%hite%ture" st&les of furniture and de%orative desi'ns" Omust meet the taste of a fi% le publi%O. It is a fa%t" ho#ever" that the CTA" in estimatin' the reasonable rate of depre%iation allo#an%e for hotels made of %on%rete and steel at ;.M3" the three fa%tors =ust mentioned had been ta en into a%%ount alread&. o )ormall&" an avera'e hotel buildin' is estimated to have a useful life of 50 &ears" but inasmu%h as the useful life of the buildin' for business purposes depends to a lar'e extent on the suitabilit& of the stru%ture to its use and lo%ation" its ar%hite%tural -ualit&" the rate of %han'e in population" the shiftin' of land values" as #ell as the extent and maintenan%e and rehabilitation. It is allo#ed a depre%iation rate of ;.M3 %orrespondin' to a normal useful life of onl& <0 &ears. Conse-uentl&" the stand of the petitioners %annot be sustained.

EXPENSES C.,. H s/ins K C , Inc. CE Dos ins is a domesti% %orporation en'a'ed in the real estate business as bro ers" mana'in' a'ents" W administrators. Er. C.E. Dos ins o#ns HH.L3 of the %orp and #as the %ompan& President. De #as also Chairman of the 9oard and re%eived salar& and bonuses and 'ot 503 share of the sales %ommissions earned b& the %ompan&. De also 'ot 503 of the supervision fees re%eived b& the %ompan& as mana'in' a'ents of Paradise Aarms subdivision. CE Dos ins filed its in%ome tax return #$ net in%ome of about PH; !.

After pa&in' the latter" CIR verified the tax returns and 4I>AFF*0?4 < items of dedu%tion W assessed it defi%ien%& in%ome taxes. The Tax Court set aside 3 of the disallo#an%es" but upheld CIR1s disallo#an%e of the 503 supervision fees earned b& Er. Dos ins. (PHH !) I/ 0$n the 503 share of Er. Dos ins in the supervision fees re%eived b& the %ompan& %an be %onsidered as dedu%tions (CIR %laims that this amount is inordinatel& lar'e" bearin' a ver& %lose relationship to the Er. Dos inRs dominant sto% holdin's and therefore amounted in la# to a distribution of its earnin's and profits) R/ )*. In this %ase" Dos ins #as/ o Chairman of the board of dire%tors of CE Dos ins" #$% bears his name o o#ned HH.L3 of its total authori8ed %apital sto% o #as salesman.bro er for his %ompan&" re%eivin' a 503 share of the sales %ommissions earned b& petitioner" besides his monthl& salar& of P3"B50.00 amountin' to an annual %ompensation of P<5"000.00 and an annual salar& bonus of P<0"000.00 o plus free use of the %ompan& %ar and re%eipt of other similar allo#an%es and benefits Thus" the Tax Court %orre%tl& ruled that the pa&ment b& CE Dos ins to Dos ins 503 share of the 23 supervision fees re%eived b& CE Dos ins as mana'in' a'ents of the real estate" subdivision pro=e%ts of Paradise Aarms" In%. and Realt& Investments" In%. #as inordinatel& lar'e and %ould not be %onsidered a dedu%tion. If su%h pa&ment #ere to be allo#ed as a dedu%tible item" then Dos ins #ould re%eive on these three items alone (salar&" bonus and supervision fee) a total of P:2H !" #hi%h #ould be double the petitionerRs reported net in%ome for the &ear. 0hile a *)?.time fee %ould be %onsidered fair W dedu%tible as an expense" in this %ase" Er.Dos ins #as re%eivin' these supervisor& fees ?@?RC C?AR re'ardless of #hether servi%es #ere a%tuall& rendered b& him. If it #as allo#ed" his total %ompensation #ould be 4*59F? the %ompan&Rs o#n net in%ome. The fa%t that su%h pa&ment #as authori8ed b& a standin' resolution of CE Dos insRs board of dire%tors" sin%e ODos ins had personall& %on%eived and planned the pro=e%tO %annot %han'e the pi%ture. There %ould be no -uestion that as Chairman of the board and pra%ti%all& an absolutel& %ontrollin' sto% holder of petitioner" holdin' HH.L3 of its sto% " Dos ins #ielded tremendous po#er and influen%e in the formulation and ma in' of the %ompan&Rs poli%ies and de%isions. Test of Reasonableness for 9onuses/ (CPR) o :) the pa&ment of bonuses is in fa%t %ompensation o ;) it must be for personal servi%es a%tuall& rendered o 3) the bonuses" #hen added to the salaries" are reasonable #hen measured b& the amount W -ualit& of the servi%es performed #ith relation to the business of the taxpa&er. Dop ins fails to pass the test. *n the ri'ht of the emplo&er as a'ainst CIR to fix the %ompensation of its offi%ers and emplo&ees" the -uestion of the allo#an%e or disallo#an%e thereof as dedu%tible expenses for in%ome tax purposes is sub=e%t to determination b& CIR" unless the& are reasonable.

Calan c v CIR

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The >o%ial 0elfare Commission (>0C) issued a soli%itation permit to Calano% in order to soli%it and re%eive %ontributions for the rp$ans an" "es!i!u!e c$il"ren of the C$il" 4el)are 4 r/ers Club of the Commission. Calano% then finan%ed and promoted a boxin' and #restlin' exhibition at the Ri8al Eemorial >tadium for the said %haritable purpose. 9efore the exhibition too pla%e" Calan%o applied #$ CIR for exemption from pa&ment of the a#use#en! !a%" rel&in' on the provisions of >e%tion ;L0 of the )ational Internal Revenue Code. CIR ans#ered that the exemption depended upon Calano%Rs %omplian%e #ith the re-uirements of la#. After the said exhibition" CIR investi'ated the tax %ase of Calano%" and from the statement of re%eipts #hi%h #as furnished the a'ent" CIR found that the 'ross sales amounted to P;L !, the expenditures in%urred #as P;5 ! and the ne! pr )i! ;as nl& P6,:>L. 5pon examination of the said re%eipts" the a'ent also found the follo#in' items of expenditures/ (a) P<L:.L5 for p lice pr !ec!i n, (b) P<L0.00 for 'ifts, (%) P:"220.05 for parties, and (d) several items for representation. *ut of the pro%eeds of the exhibition" onl& P:.3 ! #as remitted to the >0C for the said %haritable purpose for #hi%h the permit #as issued. CIR demanded from Calano% the pa&ment of the amount of 533.00, the expenditures in%urred #as P;5":5B.L;, and the net profit #as onl& P:"3B5"32. CIR thus 4?)I?4 the exemption and demanded pa&ment of amusement taxes. This #as authori8ed b& the >e%retar& of Ainan%e" 'iven that net pro%eeds are not substantial or #here the expenses are exorbitant )ot satisfied #ith the assessment imposed upon him" Calano% brou'ht this %ase to the CTA" but CTA ruled in favor of CIR. I/ 0$n Calano% is exempt from pa&in' the amusement tax. R/ )o" Calano% must pa& the assessed tax T$e C ur! e%a#ine" !$e rec r"s ) !$e case an" a'ree" ;i!$ !$e l ;er c ur! !$a! # s! ) !$e i!e#s ) e%pen"i!ures c n!aine" in !$e s!a!e#en! sub#i!!e" ! !$e a'en! are ei!$er e% rbi!an! r n ! supp r!e" b& receip!s. The expenditures for the 'ifts" parties and other items for representation are rather ex%essive" %onsiderin' that the purpose of the exhibition #as for a %haritable %ause. Also" Calano% denies havin' re%eived the stadium fee of P: #hi%h is not in%luded in the re%eipts" and %laims that if he did" he %an not be made to pa& almost seven times the amount as amusement tax. D*0?@?R" eviden%e sho#ed that #hile he did not re%eive said stadium fee" amount #as paid b& the *.>* 9evera'es dire%tl& to the stadium for advertisement privile'es in the evenin' of the entertainments. Thus" Calano% had no ri'ht to in%lude it as expense items. IT seems that the P: #ent into his po% et and #as )*T a%%ounted for. Calano% also admitted that he %ould not =ustif& the other expenses" su%h as those for poli%e prote%tion and 'ifts. De %laims further that the a%%ountant #ho prepared the statement of re%eipts is alread& dead and %ould no lon'er be -uestioned on the items %ontained in said statement. E*R?*@?R" !$e pa&#en! ) PA76.7L ) r p lice pr !ec!i n is ille'al as it is a %onsideration 'iven b& the Calano% to the poli%e for the performan%e b& the latter of the fun%tions re-uired of them to be rendered b& la#.

Fuen*le S!rei)) v CIR Quen8le W >treiff" In% is a domesti% %orporation en'a'ed in the importation of textiles" hard#are" sundries" %hemi%als" pharma%euti%als" lumbers" 'ro%eries" #ines and li-uor, in insuran%e and lumber, and in some exports. 0hen Quen8le filed its In%ome Tax Return #ith CIR" it dedu%ted from its 'ross in%ome %ertain items #hi%h #ere the/ :. salaries" dire%torsR fees and bonuses of its non.resident president W @P, ;. bonuses of its resident offi%ers and emplo&ees, and 3. interests on earned but unpaid salaries and bonuses of its offi%ers and emplo&ees. CIR ho#ever 4I>AFF*0?4 the dedu%tions of all 3 items enumerated above and assessed Quen8le for defi%ien%& in%ome taxes. Quen8le re-uested for the re.examination of this assessment and %ontended that the 3 items enumerated are treated as 2eductions from gross income invo in' se%3< of )IRC. >pe%ifi%all&" the salaries and fees of the non.resident president and @P as #ell as the bonuses of resident offi%ers and emplo&ees fall under EXPENSES ;$ic$ are r"inar& an" necessar& e%penses pai" r incurre" "urin' !$e !a%able &ear in %arr&in' on an& trade or business" in%ludin' a reasonable allo#an%e for salaries or other %ompensation for personal servi%es a%tuall& rendered. CIR modified its assesment b& all ;in' as "e"uc!ible all items %omprisin' dire%torsR fees and salaries of the non.resident president and @P" 95T "isall ;in'5 o bonuses to be dedu%ted insofar as the& ex%eed the salaries of the re%ipients" o interests on earned but unpaid salaries and bonuses to be dedu%ted as #ell CTA/ upheld the assessment made b& the CIR. CTA ruled that #hile the bonuses 'iven to the non.resident offi%ers are reasonable" bonuses 'iven to the resident offi%ers and emplo&ees are" -uite ?GC?>>I@?. I$R/ :) 0$n the reasonableness of the amount of bonuses 'iven to resident offi%ers and emplo&ees should follo# the same pattern for determinin' the reasonableness of the amount of bonuses 'iven to non.resident offi%ers. C?> JR/ 9onuses to emplo&ees made in 'ood faith and as additional %ompensation for the servi%es a%tuall& rendered b& the emplo&ees are dedu%tible" provided su%h pa&ments" #hen added to the stipulated salaries" do )*T ex%eed a R?A>*)A9F? %ompensation for the servi%es rendered. The %ondition pre%edents to the dedu%tion of bonuses to emplo&ees are/ (CPR) (:) the pa&ment of the bonuses is in fa%t compensation, (;) it must be for personal servi%es a%tuall& rendered, and (3) the bonuses" #hen added to the salaries" are reasonable #hen measured b& the amount and -ualit& of the servi%es performed #ith relation to the business of the parti%ular taxpa&er There is no fixed test for determinin' the reasonableness of a 'iven bonus as %ompensation. Do#ever" in determinin' #hether the parti%ular salar& or %ompensation pa&ment is reasonable" the situation must be %onsidered as a #hole. In this %ase" Quen8le %ontended that it is error to appl& the same measure of reasonableness to both resident and non.resident offi%ers be%ause the nature" extent and -ualit& of the servi%es performed b& ea%h #ith relation to the business of the %orporation #idel& differ. A%%ordin' to the %orp1s mana'ement" the non.resident offi%ers rendered the same amount of effi%ient personal servi%e and %ontribution to deserve e9ual treatment in %ompensation and other emoluments.

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 >in%e the non.resident president and @P 'ave the sa#e amount of duties and servi%es as %ompared to resident offi%ers and emplo&ees ( nonresidents gave their full time and attention to the services of the corporation, directed and supervised the business operations, were policy#makers, etc.)" there is )* >P?CIAF R?A>*) for 'rantin' 'reater bonuses to the lo#er ran in' offi%ers than those 'iven to non.resident president and @P. ;) 0$n bonuses 'iven in ?GC?>> of the &earl& salaries of the emplo&ees %an be allo#able as dedu%tions ( C?> This is be%ause of the determination of R?A>*)A9F?)?>> AACT*R>/ o a) post.#ar poli%& of the %orporation in 'ivin' salaries at lo# levels be%ause of the unsettled %onditions resultin' from #ar o b) the imposition of 'overnment %ontrols on imports and exports and on the use of forei'n ex%han'e #hi%h resulted in the diminution of the amount of business and the %onse-uent loss of profits on the part of the %orporation o C) pa&ment of bonuses in amounts a little more than the &earl& salaries re%eived %onsiderin' the prevailin' %ir%umstan%es is in our opinion reasonable. 3) 0$n the pa&ment of interests on earned but unpaid salaries and bonuses %an be %onsidered dedu%tions. )* In order that interest ma& be dedu%tible" it must be paid Oon indebtednessO. Dere the items involved are un%laimed salaries and bonus parti%ipation #$% CA))*T %onstitute indebtedness be%ause even if the& %onstitute an obli'ation on the part of the %orporation" it is not the %orp1s fault if the& remained un%laimed. >in%e the %orporation had at all times suffi%ient funds to pa& the salaries of its emplo&ees" #hatever an emplo&ee ma& fail to %olle%t is )*T an indebtedness. It is the emplo&ee1s %on%ern to %olle%t it in due time. INTEREST Paper In"us!ries C rp ) !$e P$ils v CA The Paper Industries Corporation of the Philippines (OPi%opO)" is a Philippine %orporation re'istered #ith the 9oard of Investments (O9*IO) as a preferred pioneer enterprise #ith respe%t to its inte'rated pulp and paper mill " and as a preferred non#pioneer enterprise #ith respe%t to its inte'rated pl&#ood and veneer mills. In :HLH" :HB; and :HBB" Pi%op obtained loans from forei'n %reditors in order to finan%e the pur%hase of ma%hiner& and e-uipment needed for its operations. Pi%op also issued promissor& notes of about P;30E" on #$% it paid P<5E in interest. In its :HBB In%ome Tax Return" Pi%op %laimed the interest pa&ments on the loans as 4?45CTI*)> from its :HBB 'ross in%ome. The CIR disallo#ed this dedu%tion upon the 'round that" be%ause the loans had been in%urred for the pur%hase of ma%hiner& and e-uipment" the interest pa&ments on those loans should have been %apitali8ed instead and %laimed as a depreciation deduction ta in' into a%%ount the ad=usted basis of the ma%hiner& and e-uipment (ori'inal a%-uisition %ost plus interest %har'es) over the useful life of su%h assets. I/ 0$n the interest pa&ments %an be dedu%ted from 'ross in%ome ( C?> transa%tion tax R/

The :HBB )IRC does not prohibit the dedu%tion of interest on a loan in%urred for a%-uirin' ma%hiner& and e-uipment. )either does our :HBB )IRC %ompel the %apitali8ation of interest pa&ments on su%h a loan. The :HBB Tax Code is simpl& silent on a taxpa&erRs ri'ht to ele%t one or the other tax treatment of su%h interest pa&ments. A%%ordin'l&" the 'eneral rule that interest pa&ments on a le'all& demandable loan are dedu%tible from 'ross in%ome must be applied. In this %ase" the CIR does not dispute that the interest pa&ments #ere made b& Pi%op on loans incurred in connection with the carrying on of the registered operations of 9icop" i.e." the finan%in' of the pur%hase of ma%hiner& and e-uipment a%tuall& used in the re'istered operations of Pi%op. )either does the CIR den& that su%h interest pa&ments #ere legally due and demandable under the terms of su%h loans" and in fa%t paid b& Pi%op durin' the tax &ear :HBB. The CIR has been unable to point to an& provision of the :HBB Tax Code or an& other >tatute that re-uires the disallo#an%e of the interest pa&ments made b& Pi%op. TDI> PART 4I Q* >5P?R EAJ?T>/ The CIR invo es >e%tion BH of Revenue Re'ulations )o. ; #$% provides that .nterest %al%ulated for %ost. eepin' or other purposes on a%%ount of %apital or surplus invested in the business" which does not represent a charge arising under an interest#bearing obligation" is not allo#able dedu%tion from 'ross in%ome. It is %laimed b& the CIR that >e%tion BH of Revenue Re'ulations )o. ; #as Opatterned afterO para'raph :.;LL.: (b)" entitled OTaxes and Carr&in' Char'es Char'eable to Capital A%%ount and Treated as Capital ItemsO of the 5.>. In%ome Tax Re'ulations" #hi%h para'raph reads as follo#s/ (9) Taxes and Carrying Charges. U The items thus %har'eable to %apital a%%ounts are U (::) In the %ase of real propert&" #hether improved or unimproved and #hether produ%tive or nonprodu%tive. (a) Interest on a loan (but not theoreti%al interest of a taxpa&er usin' his o#n funds). @6 The trun%ated ex%erpt of the 5.>. In%ome Tax Re'ulations -uoted b& the CIR needs to be related to the relevant provisions of the 5.>. Internal Revenue Code" #hi%h provisions deal #ith the 'eneral topi% of ad=usted basis for determinin' allo#able 'ain or loss on sales or ex%han'es of propert& and allo#able depre%iation and depletion of %apital assets of the taxpa&er/ 9resent 3ule. The Internal Revenue Code" and the Re'ulations promul'ated thereunder provide that O 6o deduction shall be allowed for amounts paid or a%%rued for su%h taxes and carrying charges as" under re'ulations pres%ribed b& the >e%retar& or his dele'ate" are %har'eable to %apital a%%ount #ith respe%t to propert&" if the taxpayer elects" in a%%ordan%e #ith su%h re'ulations" to treat such taxes or charges as so chargeable.O At the same time" under the ad=ustment of basis provisions #hi%h have =ust been dis%ussed" it is provided that ad=ustment shall be made for all Oexpenditures" re%eipts" losses" or other itemsO properl& %har'eable to a %apital a%%ount" thus in%ludin' taxes and %arr&in' %har'es, ho#ever" an exception exists" in which event such ad,ustment to the capital account is not made, with respect to taxes and carrying charges which the taxpayer has not elected to capitali(e but for which a deduction instead has been taken .

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The O%arr&in' %har'esO #hi%h ma& be %apitali8ed under the above -uoted provisions of the 5.>. Internal Revenue Code in%lude" as the CIR has pointed out" interest on a loan O(but not theoreti%al interest of a taxpa&er usin' his o#n funds).O 0hat the CIR failed to point out is that such Ocarrying chargesO may" at the ele%tion of the taxpa&er" either be Ja" capitali(ed in #hi%h %ase the %ost basis of the %apital assets" e.'." ma%hiner& and e-uipment" #ill be ad=usted b& addin' the amount of su%h interest pa&ments or alternativel&" be Jb" deducted from gross income of the taxpa&er. >hould the taxpa&er ele%t to dedu%t the interest pa&ments a'ainst its 'ross in%ome" the taxpa&er %annot at the same time %apitali8e the interest pa&ments. In other #ords" the taxpa&er is not entitled to both the deduction from gross income and the ad,usted Jincreased" basis for determinin' 'ain or loss and the allo#able depre%iation %har'e. The 5.>. Internal Revenue Code does not prohibit the deduction of interest on a loan obtained for pur%hasin' ma%hiner& and e-uipment a'ainst 'ross in%ome" unless the taxpa&er has also or previously capitali(ed the same interest payments and thereb& ad=usted the %ost basis of su%h assets.

The term OindebtednessO as used in the Tax Code of the 5nited >tates %ontainin' similar provisions as in the above.-uoted se%tion has been defined as an un%onditional and le'all& enfor%eable obli'ation for the pa&ment of mone&. 0ithin the meanin' of that definition" it is apparent that a tax ma& be %onsidered an indebtedness. The term OdebtO is properl& used in a %omprehensive sense as embra%in' not merel& mone& due b& %ontra%t but #hatever one is bound to render to another" either for %ontra%t" or the re-uirement of the la#. 0here statute imposes a personal liabilit& for a tax" the tax be%omes" at least in a board sense" a debt. It follo#s that the interest paid b& herein respondent for the late pa&ment of her donorRs tax is dedu%tible from her 'ross in%ome under se%tion 30(b) of the Tax Code above -uoted.

TAXES CIR v .e"nic/& Y)*T?/ There are 3 %ases involved here" all of #hi%h #ere elevated to the >C and #ere de%ided =ointl& 'iven that the& involve the same parties and issues. The Tax Court de%ided for the spouses" but >C reversed the de%ision. GR 6N@N75 @. ?. Fedni% & and Earia @alero Fedni% &" #ere husband and #ife" both Ameri%an %iti8ens residin' in the Philippines" and have derived all their in%ome from Philippine sour%es. In :H5B" the spouses filed their in%ome tax return for :H5L and %orrespondin'l& paid taxes amountin' to about P3;0 !. In :H5H" the spouses filed an amended in%ome tax return for :H5L. The amendment %onsisted in a %laimed dedu%tion paid in :H5L to the 5> 'overnment as federal in%ome tax for :H5L. >imultaneousl& #ith the filin' of the amended return" the spouses re-uested the refund. 0hen the Commissioner of Internal Revenue failed to ans#er the %laim for refund" the spouses filed a petition #ith the Court of Tax Appeals. GR 6N67=5 The same thin' #as done in :H5L" #hen the spouses filed their domesti% in%ome tax return for :H55 and later on filed an amended in%ome tax return. *n the basis of this amended return" the spouses paid about P5B0 !. After audit" the Commissioner determined a defi%ien%& of P:L !" #hi%h amount the spouses paid. 9a% in :H55" ho#ever" the spouses filed #ith the 5> Internal Revenue A'ent in Eanila their Aederal in%ome tax return for the &ears :H<B" :H5:" :H5;" :H53 and :H5< on in%ome from Philippine sour%es on a %ash basis. Pa&ment of these federal in%ome taxes" in%ludin' penalties and delin-uen%& interest in the amount of X;L<"522.2;" #ere made in :H55 to the 5> 4ire%tor of Internal Revenue" 9altimore" Ear&land" throu'h the )ational Cit& 9an of )e# Cor " Eanila 9ran%h. In :H52" the spouses amended their Philippines in%ome tax return for :H55 to in%ludin' 5> Aederal in%ome taxes" interest a%%ruin' up to :5 Ea& :H55" and ex%han'e and ban %har'es" totalin' P5:L ! and filed a %laim for refund. GR @6A:A/ The fa%ts are similar to above %ases but refer to the spouses1 in%ome tax returns for :H5B" filed in :H52" for #hi%h the spouses paid a total sum of P:HL"BHH.L5. In :H5H" the& filed an amended return for :H5B" %laimin' dedu%tion of P:H0"B55.20" representin' taxes paid to the 5> Jovernment on in%ome derived #holl& from Philippine sour%es. The spouses also filed a %laim for refund of overpa&ment. Issue5 0$n a 5> %iti8en" residin' in the Phils #ho derived all his in%ome from the Phils %an dedu%t from his in%ome tax the amount of in%ome taxes paid to the 5> 'overnment Hel"+ Ra!i 5 )*.

CIR v 1"a. De Prie! In :H<5" Consuelo de Prieto %onve&ed b& #a& of 'ifts to her four %hildren real propert& #ith a total assessed value of about P2H0 . After the filin' of the 'ift tax returns" CIR appraised the real propert& donated for 'ift tax purposes at P:E! and assessed the total sum of about P::B as donorRs 'ift tax" interest and %ompromises due thereon. The donorRs tax #as paid b& de Preito" but sin%e the sum of about P55 represnted the total interest on a%%ount of deli-uen%&" she %alimed the P55 as dedu%tion from her in%ome tax return. CIR" ho#ever" disallo#ed the %laim and assessed de Prieto defi%ien%& in%ome tax due on the P55 " sur%har'e and %ompromise for the late pa&ment. I/ 0$n interest on FAT? PACE?)T of donorRs tax be %laimed as dedu%tion in in%ome tax return R/ C?>. 5nder the la#" for interest to be dedu%tible" it must be sho#n that/ o there be an indebtedness o there should be interest upon it o #hat is %laimed as an interest dedu%tion should have been paid or a%%rued #ithin the &ear. Dere" it is %on%eded that the interest paid b& de Preito #as in %onse-uen%e of the late pa&ment of her donorRs tax" and the same #as paid #ithin the &ear it is sou'ht to be de%lared. The onl& -uestion to be determined" as stated b& the parties" is #hether or not su%h interest #as paid upon an indebtedness #ithin the %ontemplation of se%tion 30 (b) (:) of the Tax Code #$% provides that In %omputin' net in%ome there shall be allo#ed as dedu%tions the amount of interest paid #ithin the taxable &ear on indebtedness" ex%ept on indebtedness in%urred or %ontinued to pur%hase or %arr& obli'ations the interest upon #hi%h is exempt from taxation as in%ome under this Title.

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The %onstru%tion and #ordin' of Sec!i n :B JcH J6H J-H ) !$e In!ernal Revenue Ac! sho#s the la#1s intent that the ri'ht to dedu%t in%ome taxes paid to forei'n 'overnment from the taxpa&er1s 'ross in%ome is 'iven onl& as an alternative or substitute to his ri'ht to %laim a tax %redit for su%h forei'n in%ome taxes under se%tion 30 (%) (3) and (<). Thus" unless the alien resident has a ri'ht to %laim su%h tax %redit if he so %hooses" he is pre%luded from dedu%tin' the forei'n in%ome taxes from his 'ross in%ome. The purpose of the la# is to prevent the taxpa&er from %laimin' t#i%e the benefits of his pa&ment of forei'n taxes" b& dedu%tion from 'ross in%ome and b& tax %redit. This dan'er of double %redit %ertainl& %an not exist if the taxpa&er %an not %laim benefit under either of these headin's at his option" so that he must be entitled to a tax %redit (the spouses admittedl& are not so entitled be%ause all their in%ome is derived from Philippine sour%es)" or the option to dedu%t from 'ross in%ome disappears alto'ether. 4ouble taxation be%omes obnoxious onl& #here the taxpa&er is taxed t#i%e for the benefit of the same 'overnmental entit&. In the present %ase" #hile the taxpa&ers #ould have to pa& t#o taxes on the same in%ome" the Philippine 'overnment onl& re%eives the pro%eeds of one tax. As bet#een the Philippines" #here the in%ome #as earned and #here the taxpa&er is domi%iled" and the 5nited >tates" #here that in%ome #as not earned and #here the taxpa&er did not reside" it is indisputable that =usti%e and e-uit& demand that the tax on the in%ome should a%%rue to the benefit of the Philippines. An& relief from the alle'ed double taxation should %ome from the 5nited >tates" and not from the Philippines" sin%e the 5>1s ri'ht to burden the taxpa&er is solel& predi%ated on his %iti8enship" #ithout %ontributin' to the produ%tion of the #ealth that is bein' taxed. To allo# an alien resident to dedu%t from his 'ross in%ome #hatever taxes he pa&s to his o#n 'overnment amounts to %onferrin' on the latter po#er to redu%e the tax in%ome of the Philippine 'overnment simpl& b& in%reasin' the tax rates on the alien resident. ?ver& time the rate of taxation imposed upon an alien resident is in%reased b& his o#n 'overnment" his dedu%tion from Philippine taxes #ould %orrespondin'l& in%rease" and the pro%eeds for the Philippines diminished" thereb& subordinatin' our o#n taxes to those levied b& a forei'n 'overnment. >u%h a result is in%ompatible #ith the status of the Philippines as an independent and soverei'n state.

I/ 0$n Pi%op #as entitled to dedu%tions for net operatin' losses in%urred b& Rustan Pulp W Paper Eills R/ )o. As a 'eneral rule" )et *peratin' Fosses CA))*T be %arried over for those %orps that are )*T re'istered #ith the 9*I as a preferred pioneer enterprise. Fosses ma& be dedu%ted from 'ross in%ome *)FC IA su%h lossess #ere a%tuall& sustained in the >AE? C?AR that the& are dedu%ted. RA 5:2L (Investment In%entives A%t) #as 'iven as a ver& spe%ial in%entive *)FC to re'istered pioneer firms and *)FC #ith respe%t to their re'istered operations. The purpose is to allo# these firms to a%%umulate its losses in the earl& &ears of its business and offset the losses in the later &ears #hen the& are alread& earnin'. This privile'e is 'iven onl& to the >AE? ?)T?RPRI>? en'a'ed in the >AE? R?JI>T?R?4 *P?RATI*)>. In the instant %ase" to allo# the dedu%tion %laimed b& Pi%op #ould be to permit one %orp" Pi%op" to benefit from the operatin' losses a%%umulated b& another %orporation or enterprise" RPPE. RPPE far from benefitin' from the tax in%entive 'ranted b& the 9*I statute" in fa%t 'ave up the stru''le and #ent out of existen%e and its former sto% holders =oined the mu%h lar'er 'roup of Pi%opRs sto% holders. To 'rant Pi%opRs %laimed dedu%tion #ould be to permit Pi%op to shelter its other#ise taxable in%ome (an ob=e%tive #hi%h Pi%op had from the ver& be'innin') #hi%h had not been earned b& the re'istered enterprise #hi%h had suffered the a%%umulated losses.

.OSSES PICOP v CA The Paper Industries Corporation of the Philippines (OPi%opO)" is a Philippine %orporation re'istered #ith the 9oard of Investments (O9*IO) as a preferred pioneer enterprise #ith respe%t to its inte'rated pulp and paper mill " and as a preferred non#pioneer enterprise #ith respe%t to its inte'rated pl&#ood and veneer mills. In :HBB" Pi%op entered into a mer'er a'reement #ith Rustan Pulp W Paper Eills W Rustan Eanfu%turin' Corp (both also 9*I.re'istered). 9ut before the mer'e" Rustan had a%%umulated losses of P 2: million #hile Pi%op had a profit of P H million. Pi%op %laimed P << million of RustanRs a%%umulated losses as dedu%tion a'ainst its :HBB 'ross in%ome. It used the )*FC* as basis. The CIR disallo#ed it sa&in' that previous losses #ere in%urred b& A)*TD?R TAGPAC?R" not Pi%op.

-AD DE-TS P$ile% ,inin' c CIR Philex Einin' and 9a'uio Jold entered into an a'reement #herein the Philex #ould mana'e and operate 9a'uio Jold1s minin' %laim" the >to. )i_o mine. The a'reement #as denominated as a >pe%ial Po#er of Attorne&. In the %ourse of mana'in' and operatin' the pro=e%t" Philex Einin' made advan%es of %ash and propert& in #ith the a'reement. Do#ever" the mine suffered %ontinuin' losses over the &ears #hi%h resulted Philex1s #ithdra#al as mana'er of the mine and in the eventual %essation of mine operations. Thereafter" the parties exe%uted a OCompromise #ith 4ation in Pa&mentO #herein 9a'uio Jold admitted an indebtedness to Philex in the amount of P:BHE! and a'reed to pa& the same in three se'ments b& first assi'nin' 9a'uio JoldRs tan'ible assets to Philex" transferrin' to Philex its e-uitable title in its Philodrill assets and finall& settlin' the remainin' liabilit& throu'h properties that 9a'uio Jold ma& a%-uire in the future. >ubse-uentl&" Philex #rote off in its :H2; boo s of a%%ount the remainin' outstandin' indebtedness of 9a'uio Jold b& %har'in' P::;E to allo#an%es and reserves that #ere set up in :H2: and P;"2L0"BL2.00 to the :H2; operations. In its :H2; annual in%ome tax return" Philex dedu%ted from its 'ross in%ome the amount of P::;E as Oloss on settlement of re%eivables from 9a'uio Jold a'ainst reserves and allo#an%es.O Do#ever" the 9IR disallo#ed the amount as dedu%tion for bad debt and assessed petitioner defi%ien%& in%ome tax. Philex protested" ar'uin' that the dedu%tion must be allo#ed sin%e all re-uisites for a bad debt dedu%tion #ere satisfied" to #it/ (a) there #as a valid and existin'

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debt, (b) the debt #as as%ertained to be #orthless, and (%) it #as %har'ed off #ithin the taxable &ear #hen it #as determined to be #orthless. I/ 0$n advan%es made b& Philex to 9a'uio Jold %an be %onsidered a bad debt and be dedu%tible. )* R/ Advan%es #ere in the nature of an I)@?>TE?)T and )*T a loan" therefore not dedu%tible. A readin' of the a'reement sho#s denominated as the >PA indi%ates that the parties had intended to %reate a partnership and establish a %ommon fund for the purpose. The& also had a =oint interest in the profits of the business as sho#n b& a 50.50 sharin' in the in%ome of the mine. The >PA %learl& provides that Philex #ould onl& be entitled to the return of a proportionate share of the mine assets to be %omputed at a ratio that the mana'erRs a%%ount had to the o#nerRs a%%ount. 4xcept to provide a basis for claiming the advances as a bad debt deduction, there is no reason for Baguio <old to hold itself liable to 9hilex under the compromise agreements, for any amount over and above the proportion agreed upon in the &9). In this %ase" the advan%es #ere not OdebtsO of 9a'uio Jold to petitioner inasmu%h as 9a'uio #as under no un%onditional obli'ation to return the same to the former under the >PA. As for the amounts that Philex paid as 'uarantor to 9a'uio JoldRs %reditors" the tax %ourt #as %orre%t in sa&in' that 9a'uio JoldRs debts #ere not &et due and demandable at the time that Philex paid the same. @eril&" Philex pre.paid 9a'uio JoldRs outstandin' loans to its ban %reditors and this %on%lusion is supported b& the eviden%e on re%ord. Thus" Philex %annot %laim the advan%es as a bad debt dedu%tion from its 'ross in%ome. 4edu%tions for in%ome tax purposes parta e of the nature of tax exemptions and are stri%tl& %onstrued a'ainst the taxpa&er" #ho must prove b& %onvin%in' eviden%e that he is entitled to the dedu%tion %laimed. I n this %ase" petitioner failed to substantiate its assertion that the advan%es #ere subsistin' debts of 9a'uio Jold that %ould be dedu%ted from its 'ross in%ome.

P$il Re)inin' C v CA Philippine Refinin' Compan& (PRC) #as assessed b& Commissioner of Internal Revenue (Commissioner) to pa& a defi%ien%& tax for the &ear :H25. PRC protested the assessment based on the erroneous disallo#an%es of Obad debtsO and Ointerest expenseO althou'h the same are both allo#able and le'al dedu%tions. CIR" ho#ever" issued a #arrant of 'arnishment a'ainst the deposits of PRC at a bran%h of Cit& Trust 9an " in Ea ati" Eetro Eanila. PRC a%%ordin'l& filed a petition for revie# #ith the Court of Tax Appeals (CTA) on the same assi'nment of error. The Tax Court reversed and set aside the CommissionerRs disallo#an%e of the interest expense but maintained the disallo#an%e of the supposed bad debts of :3 (out of :L) debtors. PRC then elevated the %ase to respondent Court of Appeals #hi%h denied due %ourse to the petition for revie#. I/ 0$) the bad debts %an be dedu%ted. R5 >aid a%%ounts have not satisfied the re-uirements of the O#orthlessness of a debtO.

Eere testimon& of the Ainan%ial A%%ountant of PRC explainin' the #orthlessness of said debts is nothin' more than a self.servin' exer%ise #hi%h la% s probative value. There #as no iota of do%umentar& eviden%e to 'ive support to the testimon& of an emplo&ee of PRC. Collector vs. /oodrich International Ru&&er Co ., for debts to be %onsidered as O#orthless"O and thereb& -ualif& as Obad debtsO ma in' them dedu%tible" the taxpa&er should sho# that/ o (:) there is a valid and subsistin' debt. o (;) the debt must be a%tuall& as%ertained to be #orthless and un%olle%tible durin' the taxable &ear, o (3) the debt must be %har'ed off durin' the taxable &ear, and o (<) the debt must arise from the business or trade of the taxpa&er Additionall&" before a debt %an be %onsidered #orthless" the taxpa&er must also sho# that it is indeed un%olle%tible even in the future. Aurthermore" it must be sho#n that the taxpa&er ?G?RT?4 4IFIJ?)T ?AA*RT> to %olle%t debts. (:) sendin' of statement of a%%ounts, (;) sendin' of %olle%tion letters, (3) 'ivin' the a%%ount to a la#&er for %olle%tion, and (<) filin' a %olle%tion %ase in %ourt.) In this %ase" PRC %laims that/ :) one %ustomerRs store #as burnt do#n #ith nothin' left that %an be 'arnished ;) one %ustomer #as murdered W left no assets 3) one %ustomerRs 'oods #ere hi.=a% ed <) a former emplo&ee #ho o#es them mone& %anRt be found 5) one %ustomer lost his sto% s throu'h robber& and be%ame ban rupt L) one %ustomer is a forei'n %orp and it #ould be more %ostl& to sue them in their o#n %ountr& B) one %ustomer is a 'overnment a'en%& so that PRC did not file suit a'ainst it all instan%es sho#ed that no eviden%e #as presented to sho# proof of its effort to %olle%t the debt. D*0?@?R" no eviden%e #as presented to sho# proof of its effort to %olle%t the debt. The Court vehemently re,ects the absurd thesis of petitioner that despite the supervening delay in the tax payment, nothing is lost on the part of the <overnment because in the event that these debts are collected, the same will be returned as taxes to it in the year of the recovery. 9etitioner also Duestions the imposition of the $LQ surcharge and $LQ delinDuency interest due to delay in its payment of the tax assessed. The fact that petitioner appealed the assessment to the CT) and that the same was modified does not relieve petitioner of the penalties incident to delinDuency.

Fernan"e* Her#an s v CIR Aernande8 is a domesti% %orp en'a'ed in business as an investment %ompan&. The& #ere assessed defi%ien%& in%ome taxes due to some dis%repan%ies on their dedu%tible %laims. The& %laimed losses on #orthlessness of shares of sto% in ,a!i .u#ber sin%e it #as no lon'er in operation. The& %laimed bad debts on Pala;an ,ines ;$ic$ had re-uested finan%ial help to enable it to resume its minin' operation. The %ompan& lent it mone& on the %ondition that Pala#an #ill pa& it :53 of its net profits. 9ut after 5 &ears of %ash advan%es" Pala#an still suffered losses so that finall&" the Aernande8 be%ame %onvin%ed that it %ould no lon'er re%over the %ash advan%es and #rote them off as bad debts even if Pala#an #as >TIFF I) *P?RATI*). The& %laimed losses in its operation of -ala#ban C al ,ines. The mine #as a%tuall& abandoned in :H5;. Do#ever" Aernande8 had %laimed the losses in

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:H50 W 5: sa&in' that sin%e the road to the mine #as not %onstru%ted" it %ould not and did not sell an& %oal durin' these &ears. The& %laimed a depre%iation allo#an%e for its buil"in's at an annual rate of :03. 9ut the CIR said the reasonable rate should have been 33 The& had an in%rease in net #orth %omin' from an error in its insuran%e %ompan&Rs boo s so that it appeared that its liabilit& to %reditors #as a%tuall& F*0?R. The CIR %laimed this to be taxable. >in%e Pala#an Eines %ould not repa& its debt" it transferred its C*)TRACT5AF RIJDT> to Aernande8 as partial pa&ment. The %ompan& then dedu%ted :$5th of the amount as 4?PF?TI*) CDARJ? %laimin' as basis their en'ineerRs estimate that the mine #ould be exhausted in 5 &ears. The CIR disallo#ed this. Is $ R/ :. Can !$e l sses in ,a!i .u#ber be "e"uc!e"M >in%e the o#ner of Eati had been proven to have left for >pain and died there and had left no assets. . C?>" there #as suffi%ient eviden%e. ;. Can !$e cas$ a"vances ! Pala;an be c nsi"ere" ba" "eb!sM >in%e the %ompan& 'ave advan%es to Pala#an 0ITD*5T expe%tation of repa&ment..)*" be%o8 these advan%es are %onsidered I)@?>TE?)T>" not F*A)>. The re%ord sho#ed that the t#o %ompanies had the >AE? 9*AR4 *A 4IR?CT*R>. Also" the a'reement %learl& sho#s that it did not expe%t to be repaid. And finall&" there %annot be a PARTIAF dedu%tion of bad debts. 3. Can !$e clai#s ) r l sses be "e"uc!ible in 6=LB K L6M Or s$ ul" i! be in 6=L@ ;$en !$e #ine ;as aban" ne"M3)*" it %an onl& be %laimed in :H5; be%ause some definite event must fix the time #hen the loss is sustained. The event is the abandonment of the mine. <. 4as !$e 6BG per annu# "eprecia!i n ra!e e%cessiveM .C?>" there #as no eviden%e to =ustif& that the buildin's had a useful life of onl& :0 &ears. 5. 4as !$e apparen! increase in ne! ; r!$ !a%ableM >in%e it arose from the insuran%e %ompan&Rs boo eepin' error] .)*" the in%rease #as not the result of re%eipt b& the %ompan& of unreported or unexplained taxable in%ome. It #as merel& the result of the %orre%tion of erro relatin' to its indebtedness to its %reditors. It %annot be %onsidered in%ome and therefore is not taxable. L. Can i! "e"uc! 6+L!$ ) !$e value ) !$e c n!rac!ual ri'$!s E1EN IF i! $a" n ! ac!uall& use" !$e #ine n r s l" !$e pr "uc!sM .)*" the exhaustion must be 9C PR*45CTI*). The Tax Code provides allo#an%e for depletion of mines *)FC for that #hi%h has been mined and and the produ%ts a%tuall& sold durin' the &ear.

error in findin' the existen%e of unreasonabl& a%%umulated profits but CA affirmed he defi%ien%& assessment. I/ 0$n the defi%ien%& assessments #ere proper R/ C?>" the& #ere proper. 4epre%iation is the 'radual diminution in useful value of tan'ible propert& resultin' from #ear and tear. An o#ner is entitled to see that from his earnin's the value of the propert& invested is ept unimpaired so that at the end of a& 'iven term of &ears the ori'inal investment remains as it #as in the be'innin'. Thus the la# permits taxpa&er to re%over 'raduall& his %apital investment free from in%ome tax. 5nder the tax %ode" a dedu%tion is allo#ed from 'ross in%ome for depre%iation but )*T be&ond the a%-uisition %ost. If be&ond the a%-uisition %ost" the o#ner #ould also be able to re%over profit. In this %ase" 9asilan %laimed dedu%tions for depre%iation of its assets up to :H<H on the basis of their a%-uisition %ost. In :H50" it %han'ed the depre%iable value of said assets b& in%reasin' it to %onform #ith the in%rease in %ost for their repla%ement (P5:";5;.H2). Thus" the CIR #as %orre%t in allo#in' it depre%iation based on the >AE? *F4 A>>?T> onl&" and )*T the reappraised value. An&thin' be&ond the a%-uisition %ost is alread& %onsidered PR*AIT. =pon investigation, the C.3 found that the reappraised assets in !ELI were the same ones which depreciation was claimed in !EL$. )nd in !EL$ the commissioner had already determined the depreciation allowable on the said assets in the amount of 9IF,PK$.AK. Thus the depreciation beyond 9IF,PK$.AK is not allowed.

DEPRECIATION -asilan Es!a!es, Inc v CIR 9asilan ?states is a Philippine %orporation en'a'ed in %o%onut industr&. It filed its in%ome tax returns and #as %har'ed defi%ien%& in%ome tax due to disallo#ed depre%iation" travellin' expenses" mis%ellaneous expenses and unreasonabl& a%%umulated profits. 4ue to the nonpa&ment of the amount" a #arrant of lev& #as issued but #as not exe%uted be%ause 9asilan #as able to 'et the 4eput& of CIR to hold exe%ution and maintain %onstru%tive embar'o instead. )oti%e #as then served that the lev& #ould be exe%uted. Thus" 9asilan filed before the CTA a petition for revie# of the Commisioner1s assessment alle'in' pres%ription of period for assessment and %olle%tion" error in disallo#in' %laimed depre%iations" travelin' and mis%ellaneous expenses and

.i#pan Inves!#en! C rp v CIR Fimpan" a domesti% %orporation dul& re'istered" is en'a'ed in the business of leasin' real properties. Its prin%ipal sto% holders are the spouses Isabelo P. Fim and Purifi%a%ion Ce_i8a de Fim" #ho o#n and %ontrol HH3 of its total paid.up %apital. Its president and %hairman of the board is the same Isabelo Fim. The %orp dul& filed its :H5L and :H5B in%ome tax returns and respe%tivel& paid %orrespondin' taxes. >ubse-uentl&" the 9IR %ondu%ted an investi'ation of the %orp1s in%ome tax returns and as%ertained that Fimpan had underde%lared its rental in%omes durin' these taxable &ears and had %laimed ex%essive depre%iation of its buildin's in the %overin' the same period. *n the basis of these findin's" CIR issued its letter.assessment and demand for pa&ment of defi%ien%& in%ome tax and sur%har'e a'ainst petitioner %orporation. Fimpan as ed for re%onsideration re'ardin' the assessment" but it #as denied. I/ 0$n Fimpan is liable for pa&ment of defi%ien%&. R/ C?>" Fimpan is liable for defi%ien%&. Fimpan admitted throu'h its o#n #itness (@i%ente J. >olis ( Corporate >e%retart&.Treasurer)" that it had unde%lared more than one.half (:$;) of the amount (P:;":00.00 out of P;0":HH.00) found b& the 9IR examiners as unreported rental in%ome for the &ear :H5L and more than one.third (:$3) of the amount (P;H"350.00 out of P2:"LH0.00) as%ertained b& the same examiners as unreported rental in%ome for the &ear :H5B" %ontrar& to its ori'inal %laim to the revenue authorities" it #as in%umbent upon it to establish the remainder of its pretensions b& %lear and %onvin%in' eviden%e" that in the %ase is la% in'. The ex%use that Fim retained o#nership of the lands and onl& later transferred or

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disposed of the o#nership of the buildin's existin' thereon to the %orporation" so as to =ustif& the alle'ed verbal a'reement #hereb& the& #ould turn over to the %orporation L3 of the value of its properties to be applied to the rentals of the land and in ex%han'e for #hatever rentals the& ma& %olle%t from the tenants #ho refused to re%o'ni8e the ne# o#ner or vendee of the buildin's" is not onl& unusual but un%orroborated b& the alle'ed transferors" or b& an& do%ument or unbiased eviden%e. Also" Fim #as not presented as #itness to %orraborate the testimon& >olis nor #as his :H5B personal in%ome tax return submitted in %ourt to establish that the rental in%ome #hi%h he alle'edl& %olle%ted and re%eived in :H5B #ere reported therein. Fastl&" the Court held that Odepre%iation is a -uestion of fa%t and is not measured b& theoreti%al &ardsti% " but should be determined b& a %onsideration of a%tual fa%tsO" and the findin's of the Tax Court in this respe%t should not be disturbed #hen not sho#n to be arbitrar& or in abuse of dis%retion" and Fim has not sho#n an& arbitrariness or abuse of dis%retion in the part of the Tax Court in findin' that petitioner %laimed ex%essive depre%iation in its returns. It appearin' that the Tax Court applied rates of depre%iation in a%%ordan%e #ith 9ulletin OAO of the 5.>. Aederal Internal Revenue >ervi%e" #hi%h this Court pronoun%ed as havin' stron' persuasive effe%t in this =urisdi%tion" for havin' been the result of s%ientifi% studies and observation for a lon' period in the 5nited >tates" after #hose In%ome Tax Fa# ours is patterned" the fore'oin' error is devoid of merit.

Cost of Eine Propert& ............................ + Rate of 4epletion ?stimated *re 4eposit The Commissioner and the Compan& do not a'ree as to the fi'ures %orrespondin' to either fa%tor that affe%ts the rate of depletion per unit. The fi'ures a%%ordin' to the Commissioner are/ P;"L<L"2B2.<< (mine %ost) ............................ + P0.5H:2H (Rate of 4epletion) <"<B:"2H; tons (?stimated *re 4eposit) #hile the Compan& insists the& are/ P<";32"HB<.5B (mine %ost) ............................ + P:.0:HB (Rate of 4epletion) <":5L"222 tons (?stimated *re 4eposit) The& a'ree" ho#ever" that the O%ost of the mine propert&O %onsists of (:) mine %ost, and (;) expenses of development before produ%tion. As to mine %ost" the parties are pra%ti%all& in a'reement U the Commissioner sa&s it is P;"5:5"000 (the Compan& puts it at P;"500"000). As to expenses of development before produ%tion the Commissioner and the Compan& #idel& differ. The Compan& %laims it is P:"B32"HB<.5L" #hile the Commissioner sa&s it is onl& P:3:"2B2.<<. As an in%ome tax %on%ept" depletion is #holl& a %reation of the statute @6 U Osolel& a matter of le'islative 'ra%e.O @@ Den%e" the taxpa&er has the burden of =ustif&in' the allo#an%e of an& dedu%tion %laimed. @: As in %onne%tion #ith all other tax %ontroversies" the burden of proof to sho# that a disallo#an%e of depletion b& the Commissioner is in%orre%t or that an allo#an%e made is inade-uate is upon the taxpa&er" and this is true #ith respe%t to the value of the propert& %onstitutin' the basis of the dedu%tion.

DEP.ETION C ns li"a!e" ,ines, Inc v CTA Consolidated Eines (CE)" en'a'ed in minin'" had filed its in%ome tax returns for :H5:" :H5;" :H53 and :H5L. In :H5B" examiners of the 9ureau of Internal Revenue investi'ated the in%ome tax returns filed b& the Compan& be%ause on Au'ust :0" :H5<" its auditor" Aelipe *llada %laimed the refund of the sum of P:0B"<B;.00 representin' alle'ed overpa&ments of in%ome taxes for the &ear :H5:. After the investi'ation the examiners reported that CE had overstated its %laim for depletion. The CIR then assessed CE for defi%ien%& taxes. CE appealed this assessment to the CTA. CE then -uestioned the =ud'ment of the CTA re'ardin' the rate of depletion it adopted. I/ 0$n CE overstated its rate of depletion, 0$n the rate of depletion adopted b& the CTA #as proper R/ Ces" CE overstated its rate of depletion. The rate of depletion per ton of the ore deposit mined and sold b& the Compan& is P0.L:HL per ton <H not P0.5H:2H as %ontended b& the Commissioner nor P:.0:HB as %laimed b& the Compan&, The Tax Code provides that in %omputin' net in%ome there shall be allo#ed as dedu%tion" in the %ase of mines" a reasonable allo#an%e for depletion thereof not to ex%eed the mar et value in the mine of the produ%t thereof #hi%h has been mined and sold durin' the &ear for #hi%h the return is made `>e%. 30(') (:) (9)a. The formula for %omputin' the rate of depletion is/

(The follo#in' dis%ussion is about the differen%e bet#een the expenses of development before produ%tion) As proof that the amount spent for developin' the mines #as P:"B32"HB<.5L" the Compan& relies on the testimon& of ?li'io >. Jar%ia and on ?xhibits :" 3: and 32. ?xhibit I is the Compan&Rs report to its sto% holders for the &ear :H<B. It %ontains the Compan&Rs balan%e sheet as of 4e%ember 3:" :H<L (?xhibit I.:). Amon' the assets listed is OEines" Improvement W 4ev.O in the amount of P<";32"HB<.5B (%osts of mine propert&)" #hi%h" a%%ordin' to the Compan&" %onsisted of P;"500"000" pur%hase pri%e of the mine" and P:"B32"HB<.5L" %ost of developin' it. The Compan& has not explained in detail in #hat amount or the lesser amount of P:"B32"HB<.5L %onsisted. )or has it explained ho# that bi''er amount be%ame P:"B32"HB<.5L in the balan%e sheet for 4e%ember 3:" :H<L. (>impl& put" CE #as not able to explain #hat the P:.Bm %onsisted.) C, c ul" n ! pr ve !$e au!$en!ici!& ) !$e PA.@# a# un! because !$e& #erel& base" !$e a# un! )r # a balance s$ee!" #hi%h the& failed to produ%e in %ourt. >o the %ourt relied

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instead on the Commissioner1s ta e on the %ost of mine propert& #hi%h is P;"L<L"2B2.<<. To prove the %ommissioner1s %ost of mine propert&" it presented ?xhibit 3:. This is a memorandum #hi%h pointed out that CE failed to ta e into a%%ount the differen%e bet#een depre%iable and depletiable expenditures. (Qa&a narea%h n' CE &un' P<m na amount asi inonsider nila na an' depletiable at depre%iable expenses a& one and the same. Qa&a tumaas &un' %ost of mine propert& be%ause of this. Qapa' tinan''al &un' depre%iable expenses" bababa &un' %ost of mine propert& a&a P;m na lan' as per assessment of the Commissioner.) )o# as to the se%ond part of the %osts of mine propert&" the Court relied on the Commissioner1s assessment #hi%h is P:3:" 2B2.<< asi ma& mas basis si&a %ompared to CE. >in%e &un' %omputation ni CE (&un' sa taas) is #ron'" the %ourt %annot rel& on it so the& relied on the Commissioner1s assessment. Dindi na tinan''ap &un' P:.Bm na assessment n' CE asi #alan' basis. As to the estimated ore deposit" the Compan&Rs fi'ure is O<":5L"222 tons"O #hile that of the Commissioner is the lar'er fi'ure O<"<B:"2H; tons.O The differen%e of 3:5"00< tons #as due to the fa%t that the Commissioner too into a%%ount all the ore that %ould probabl& be removed and mar eted b& the Compan&" utili8in' the total tonna'e shipped before and after the #ar (H33":20 tons) and the total reserve of shippin' material pe''ed at 3"523"B:; tons. This is #ron'P The Commissioner should not have in%luded the pie%es of ore that had bro en loose and be%ome deta%hed b& erosion from their ori'inal position %ould hardl& be vie#ed as still formin' part of the total estimated ore deposit. Davin' alread& been bro en up into numerous small pie%es and pra%ti%all& rendered useless for minin' purposes" the same %ould not appre%iabl& in%rease the ore potentials of the Compan&Rs mines. The follo#in' are the %orre%t fi'ures. The %orre%t fi'ures therefore are/ P;"5:5"000.00 (mine %ost proper) ! P:3:"2B2.<< (development %ost) <";B:"2H; (estimated ore deposit) or P;"L<L"2B2.<< (mine %ost) + P0.L:HL (rate of depletion deposit) <";B:"2H; (estimated ore per ton) RESEARCH AND DE1E.OP,ENT :, P$ils v CIR Fac!s5 3E Philippines" In%." a subsidiar& of 3E.>t. Paul" is a non.resident forei'n %orporation #ith prin%ipal offi%e in >t. Paul" Einnesota" 5>A. It is the ex%lusive importer" manufa%turer" #holesaler" and distributor in the Philippines of all produ%ts of the latter. To enable it to manufa%ture" pa% a'e" promote" mar et" sell and install the hi'hl& spe%iali8ed produ%ts of its parent %ompan&" and render the ne%essar& post.sales servi%e and maintenan%e to its %ustomers" petitioner entered into a O>ervi%e Information and Te%hni%al Assistan%e A'reementO and a OPatent and Trademar Fi%ense A'reementO #ith the latter under #hi%h the petitioner a'reed to pa& to 3E.>t. Paul a te%hni%al servi%e fee of 33 and a ro&alt& of ;3

of its net sales. 9oth a'reements #ere submitted to" and approved b&" the Central 9an of the Philippines. In its in%ome tax return for the fis%al &ear ended *%tober 3:" :HB<" the petitioner %laimed the follo#in' dedu%tions as business expenses/ (a) ro&alties and te%hni%al servi%e fees of P 3"050"L<L.00, and (b) pre.operational %ost of tape %oater of PHB"<25.02. *n the )irs! i!e#" the respondent Commissioner of Internal Revenue allo#ed a dedu%tion of BHB"0<L.0H onl& as te%hni%al servi%e fee and ro&alt& for locally manufactured produ%ts" but disallo#ed the sum of ;"3;3"5HH.0; alle'ed to have been paid b& the petitioner to 3E.>t. Paul as te%hni%al servi%e fee and ro&alt& on <L"<B:"HH2.00 worth of finished products imported b& the petitioner from the parent %ompan&" on the 'round that the fee and ro&alt& should be based onl& on lo%all& manufa%tured 'oods. The improper dedu%tion #as treated b& respondent as a dis'uised dividend or in%ome. *n the sec n" i!e#" respondent allo#ed :H"5<<.BB or one.fifth (:$5) of petitionerRs %apital expenditure of HB"0<L.0H for its tape %oater #hi%h #as installed in :HB3 be%ause su%h expenditure should be amorti8ed for a period of five (5) &ears" hen%e" pa&ment of the disallo#ed balan%e of BB"B<0.32 should be spread over the next four (<) &ears. Respondent ordered petitioner to pa& 2<0"5<0 as defi%ien%& in%ome tax on its :HB< return" plus 353"0;L.20 as :<3 interest per annum from Aebruar& :5" :HB5 to Aebruar& :5" :HBL" or a total of !,!EI,LFF.PA. Petitioner protested the assessment in a letter dated Ear%h B" :H20. The respondent Commissioner did not ans#er the protest. Instead" he issued #arrants of distraint and lev& on *%tober :" :H2<. *n *%tober ;3" :H2<" petitioner appealed to the Court of Tax Appeals b& petition for revie# #ith a pra&er for the issuan%e of a #rit of preliminar& in=un%tion to stop the enfor%ement of the #arrants of distraint and lev&. The #rit #as issued upon petitioner postin' a :"250"000 bond.The Tax Court rendered a de%ision on Au'ust :<" :H2B upholdin' the CommissionerRs rulin'. PetitionerRs motion for re%onsideration of the de%ision #as denied b& the Tax Court on April L" :H22. Den%e" this petition. Issue5 0hether or not the rulin' of CIR is proper] Hel"/ Aindin' no reversible error in the de%ision of the Court of Tax Appeals" the petition for revie# is denied. 9e%ause remittan%es to forei'n li%ensors of te%hni%al servi%e fees and ro&alties are made in forei'n ex%han'e" C9 Cir%ular )o. 3H3 (Re'ulations Jovernin' Ro&alties$Rentals) dated 4e%ember B" :HB3 #as promul'ated b& the Central 9an as an ex%han'e %ontrol re'ulation to %onserve forei'n ex%han'e and avoid unne%essar& drain on the %ountr&Rs international reserves >e%tion. 3.C of the %ir%ular provides that ro&alties shall be paid onl& on %ommodities manufactured b& the li%ensee under the ro&alt& a'reement. Clearl&" no ro&alt& is pa&able on the #holesale pri%e of finished produ%ts imported b& the li%ensee from the li%ensor. Do#ever" petitioner ar'ues that the la# appli%able to its %ase is onl& >e%tion ;H(a) (:) of the Tax Code #hi%h provides/

(a)

?xpenses. U (:) Business expenses. U (A) In 'eneral. U )ll ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, in%ludin' a reasonable allo#an%e for salaries or other %ompensation for personal servi%es a%tuall& rendered, travellin' expenses #hile a#a& from home in the pursuit of a trade" profession or

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business" rentals or other payments reDuired to be made as a condition to the continued use or possession, for the purpose of the trade, profession or business" for propert& to #hi%h the taxpa&er has not ta en or is not ta in' title or in #hi%h he has no e-uit&. Petitioner points out that the Central ban Ohas no sa& in the assessment and %olle%tion of internal revenue taxes as su%h po#er is lod'ed in the 9ureau of Internal Revenue"O that the Tax Code Onever mentions Cir%ular 3H3 and there is no la# or re'ulation 'overnin' dedu%tion of business expenses that refers to said %ir%ular.O The ar'ument is spe%ious" for" althou'h the Tax Code allo#s pa&ments of ro&alt& to be dedu%ted from 'ross in%ome as business expenses" it is C9 Cir%ular )o. 3H3 that defines #hat ro&alt& pa&ments are proper. Den%e" improper pa&ments of ro&alt& are not dedu%tible as le'itimate business expenses.

Calasan* v CIR 5rsula Calasan8 (#ife of Tomas) inherited from her father a par%el of land in Cainta" Ri8al. In order to li-uidate her inheritan%e" she had the land surve&ed" and subdivided into lots" and put up improvements su%h as roads" draina'e" li'htin'" et%." to ma e it more saleable. After#ards" the lots #ere sold. >he and her husband in the same &ear filed a =oin in%ome tax return #ith the 9IR" dis%losin' a profit of P 3:" 0L0. 0L from the sale of the lots" and reported 503 or P:5"530.03 as taxable %apital 'ains. Do#ever upon audit and revie#" the& #ere ad=ud'ed as petitioners en'a'ed in real estate business and #ere thus assessed real estate dealer1s tax and defi%ien%& in%ome tax on ordinar& 'ain. The spouses Calasan8 %ontended that inherited land is a %apital asset #ithin the meanin' of >e%tion 3< of the Tax Code and that an heir #ho li-uidates his inheritan%e %annot be said to have en'a'ed in real estate business and ma& not be denied the preferential tax treatment 'iven to 'ains from sale of %apital assets" merel& be%ause he disposed of it in the onl& possible and advanta'eous #a&. The& also averred that the land #as sold be%ause of their intention to effe%t a li-uidation" it1s bein' divided into smaller lots made it easier to dispose of. Do#ever the& also admitted that the improvements the& introdu%ed to the land #ere added to fa%ilitate its sale. *n the other hand" respondent Commissioner maintained that the imposition of the taxes in -uestion is in a%%ordan%e #ith la# sin%e petitioners are deemed to be in the real estate business for havin' been involved in a series of real estate transa%tions pursued for profit. Respondent ar'ued that propert& a%-uired b& inheritan%e ma& be %onverted from an investment propert& to a business propert& if" as in the present %ase" it #as subdivided" improved" and subse-uentl& sold and the number" %ontinuit& and fre-uen%& of the sales #ere su%h as to %onstitute Odoin' business.O Respondent li e#ise %ontended that inherited propert& is b& itself neutral and the fa%t that the ultimate purpose is to li-uidate is of no moment for the important in-uir& is #hat the taxpa&er did #ith the propert&. Respondent %on%luded that sin%e the lots are ordinar& assets" the profits reali8ed therefrom are ordinar& 'ains" hen%e taxable in full. Issue5 0hether or not petitioners are real estate dealers liable for real estate dealer1s fixed tax 0hether the 'ains reali8ed from the sale are taxable in full as ordinar& in%ome or %apital 'ains taxable at %apital 'ain rates Hel"5 The Court de%ided in favor of the respondent. Petitioners en'a'ed in the real estate business and a%%ordin'l&" the 'ains from the sale of the lots are ordinar& in%ome taxable in full. Ra!i 5 The assets of a taxpa&er are %lassified for in%ome tax purposes into ordinar& assets and %apital assets. >e%tion 3<`aa `:a of the )ational Internal Revenue Code broadl& defines %apital assets as follo#s/ `:a Capital assets..The term R%apital assetsR means propert& held b& the taxpa&er `#hether or not %onne%ted #ith his trade or businessa" but does not in%lude" sto% in trade of the taxpa&er or other propert& of a ind #hi%h #ould properl& be in%luded" in the inventor& of the taxpa&er if on hand at the %lose of the taxable &ear" or propert& held b& the taxpa&er primaril& for sale to %ustomers in the ordinar& %ourse of his trade or business" or propert& used in the trade or business of a %hara%ter #hi%h is sub=e%t to the allo#an%e for depre%iation provided in subse%tion `fa of se%tion thirt&, or real propert& used in the trade or business of the taxpa&er.

ESSO S!an"ar" Eas!ern v CIR Fac!s5 ?>>* dedu%ted from its 'ross in%ome for :H5H" as part of its ordinar& and ne%essar& business expenses" the amount it had spent for drillin' and exploration of its petroleum %ons%essions. The Commissioner disallo#ed the %laim on the 'round that the expenses should be %apitali8ed and mi'ht be #ritten off as a loss onl& #hen a 6dr& hole7 should result. Den%e" ?>>* filed an amended return #here it as ed for the refund of P3;3";B0 b& reason of its abandonment" as dr& holes" of several of its oil #ells. It also %laimed as ordinar& and ne%essar& expenses in the same return amount representin' mar'in fees it had paid to the Central 9an on its profit remittan%es to its )e# Cor *ffi%e. Issue5 0hether the mar'in fees ma& be %onsidered ordinar& and ne%essar& expenses #hen paid. Hel"5 Aor an item to be dedu%tible as a business expense" the expense must ebe ordinar& and ne%essar&, it must be paid or in%urred #ithin the taxable &ear, and it must be paid or in%urred in %arr&in' on a trade or business. In addition" the taxpa&rer must substantiall& prove b& eviden%e or re%ords teh dedu%tions %laimed under la#" other#ise" the same #ill be disallo#ed. There has been no attempt to define 6ordinar& and ne%essar&7 #ith pre%ision. Do#ever" as 'uidin' prin%iple in the proper ad=udi%ation of %onfli%tin' %laims" an expenses is %onsidered ne%essar& #here the expenditure is appropriate and helpdul in the development of the taxpa&er1s business. It is ordinar& #hen it %onnotes a pa&ment #hi%h is normal in relation to the business of the taxpa&er and the surroundin' %ir%umstan%es. Assumin' that the expenditure is ordinar& and ne%essar& in the operation of the taxpa&er1s business, the expenditure" to be an allo#able dedu%tion as a business expense" must be determined from the nature of the expenditure itself" and on the extent and permanen%& of the #or a%%omplished b& the expenditure. Derein" ?>>* has not sho#n that the remittan%e to the head offi%e of part of its profits #as made in furtheran%e of its o#n trade or business. The petitioner merel& presumed that all %orporate expenses are ne%essar& and appropriate in the absen%e of a sho#in' that the& are ille'al or ultra vires, #hi%h is erroneous. Claims for dedu%tions are a matter of le'islative 'ra%e and do not turn on mere e-uitable %onsiderations. CAPITA. ASSETS

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If an asset is not amon' the ex%eptions" it is a %apital asset, %onversel&" assets fallin' #ithin the ex%eptions are ordinar& assets. And ne%essaril&" an& 'ain resultin' from the sale or ex%han'e of an asset is a %apital 'ain or an ordinar& 'ain dependin' on the ind of asset involved in the transa%tion. Do#ever there is no fixed formula or rule #hi%h %an determine #hether a propert& sold b& a taxpa&er #as sold in the ordinar& %ourse of business or #hether it #as sold as a %apital asset. The fa%ts and %ir%umstan%es of ea%h %ase must be anal&8ed to determine that. A propert& initiall& %lassified as a %apital asset ma& be treated as an ordinar& asset if a %ombination of the fa%tors sho# that the a%tivit& #as in furtheran%e of or in the %ourse of the taxpa&erRs trade or business. Thus" a sale of inherited real propert& usuall& 'ives %apital 'ain or loss even thou'h the propert& has to be subdivided or improved or both to ma e it saleable. Do#ever" if the inherited propert& is substantiall& improved or ver& a%tivel& sold or both it ma& be treated as held primaril& for sale to %ustomers in the ordinar& %ourse of the heirRs business. 5pon an examination of the fa%ts on re%ord" the a%tivities of petitioners are indistin'uishable from those invariabl& emplo&ed b& one en'a'ed in the business of sellin' real estate. This is primaril& due to the development of the real propert&. The petitioners did not sell the land in the %ondition the& a%-uired it. It #as ori'inall& a'ri%ultural land" #hi%h the& turned into a residential area" introdu%in' numerous improvements in order to enti%e bu&ers. The %ost of the improvements amounted to a lar'e amount" and the extensive improvements indi%ate that the seller held the propert& primaril& for sale to %ustomers in the ordinar& %ourse of business. The existen%e of %ontra%t re%eivables" and the si8able amount of the re%eivables in %omparison of the sales volume durin' the same period sho#s that lots #ere sold on instalment basis" and su''ests the number" %ontinuit&" and fre-uen%& of the sales. Another indi%ator of parti%ipatin' in real estate business is the %ir%umstan%e that the lots #ere advertised 6: for sale to the publi% and that sales and %olle%tion %ommissions #ere paid out durin' the period in -uestion. Petitioners" li e#ise" ur'e that the lots #ere sold solel& for the purpose of li-uidation. The fa%t that propert& is sold for purposes of li-uidation does not fore%lose a determination that a Otrade or businessO is bein' %ondu%ted b& the seller. The real propert& %an be sold #ithout losin' the benefits of the %apital 'ain provision" unless he enters the real estate business and %arries on the sale in the manner in #hi%h su%h a business is ordinaril& %ondu%ted. In that event" the li-uidation %onstitutes a business and a sale in the ordinar& %ourse of su%h a business and the preferred tax status is lost.

0hen the petitionerRs mother #as &et alive she had these t#o par%els subdivided into t#ent&.nine lots. T#ent&.ei'ht #ere allo%ated to their then o%%upants #ho had lease %ontra%ts #ith the petitionerRs prede%essor at various times from :H00 to :H03" #hi%h %ontra%ts expired on 4e%ember 3:" :H53. The ;Hth lot (hereinafter referred to as Fot ;H)" #ith an area of <2"000 s-uare meters" more or less" #as not leased to an& person. It needed fillin' be%ause of its ver& lo# elevation" and #as planted to kangkong and other %rops. After the petitioner too possession of the mentioned par%els in :H50" he instru%ted his attorne&.in.fa%t" K. Antonio Araneta" to sell them. There #as no diffi%ult& en%ountered in sellin' the ;2 small lots as their respe%tive o%%upants bou'ht them on a :0.&ear installment basis. Fot ;H %ould not ho#ever be sold immediatel& due to its lo# elevation. >ometime in :H5; the petitionerRs attorne&.in.fa%t had Fot ;H filled" then subdivided into small lots and paved #ith ma%adam roads. The small lots #ere then sold over the &ears on a uniform :0.&ear annual amorti8ation basis. K. Antonio Araneta" the petitionerRs attorne&.in. fa%t" did not emplo& an& bro er nor did he put up advertisements in the matter of the sale thereof. In :H53 and :H5< the petitioner reported his in%ome from the sale of the small lots (P:0;"050.BH and P:03"<L2.5L" respe%tivel&) as lon'.term %apital 'ains. *n Ea& :B" :H5B the Colle%tor of Internal Revenue upheld the petitionerRs treatment of his 'ains from the said sale of small lots" a'ainst a %ontrar& rulin' of a revenue examiner. *n the basis of the :H5B opinion of the Colle%tor of Internal Revenue" the revenue examiner approved the petitionerRs treatment of his in%ome from the sale of the lots in -uestion. #hi%h #as %on%urred in b& the Commissioner of Internal Revenue. *n Kanuar& H" :HL3" ho#ever" the Commissioner reversed himself and %onsidered the petitionerRs profits from the sales of the mentioned lots as ordinar& 'ains. *n Kanuar& ;2" :HL3 the petitioner re%eived a letter from the 9ureau of Internal Revenue advisin' him to pa& defi%ien%& in%ome tax for :H5B Issue5 :.)0$n he #as en'a'ed in the business of leasin' the lots he inherited from his mother as #ell other real properties ;.)0$n his subse-uent sales of the mentioned lots %annot be re%o'ni8ed as sales of %apital assets but of Oreal propert& used in trade or business of the taxpa&er Hel"5 the =ud'ment of the Court of Tax Appeals is affirmed" ex%ept the portion thereof that imposes 53 sur%har'e and :3 monthl& interest" #hi%h is hereb& set aside. )o %osts. Ra!i nale5 As thus defined b& la#" the term O%apital assetsO in%ludes all the properties of a taxpa&er #hether or not %onne%ted #ith his trade or business" ex%ept/ (:) sto% in trade or other propert& in%luded in the taxpa&erRs inventor&, (;) propert& primaril& for sale to %ustomers in the ordinar& %ourse of his trade or business, (3) propert& used in the trade or business of the taxpa&er and sub=e%t to depre%iation allo#an%e, and (<) real propert& used in trade or business. If the taxpa&er sells or ex%han'es an& of the properties above. enumerated" an& 'ain or loss relative thereto is an ordinar& 'ain or an ordinar& loss, the 'ain or loss from the sale or ex%han'e of all other properties of the taxpa&er is a %apital 'ain or a %apital loss. 5nder se%tion 3<(b) (;) of the Tax Code" if a 'ain is reali8ed b& a taxpa&er (other than a %orporation) from the sale or ex%han'e of %apital assets held for more than t#elve months" onl& 503 of the net %apital 'ain shall be ta en into a%%ount in %omputin' the net in%ome. 0hen the petitioner obtained b& inheritan%e the par%els in -uestion" transferred to him #as not merel& the dut& to respe%t the terms of an& %ontra%t thereon" but as #ell the %orrelative ri'ht to re%eive and en=o& the fruits of the business and propert& #hi%h the

ORDINARC INCO,E Tuas n v .in'a" In :H<2 the petitioner inherited from his mother several tra%ts of land" amon' #hi%h #ere t#o %onti'uous par%els situated on Pure8a and >ta. Eesa streets in Eanila" #ith an area of 3:2 and LB"L2< s-uare meters" respe%tivel&.

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de%edent had established and maintained. > Eoreover" the re%ord dis%loses that the petitioner o#ned other real properties #hi%h he #as puttin' out for rent" from #hi%h he periodi%all& derived a substantial in%ome" and for #hi%h he had to pa& the real estate dealerRs tax 5nder the %ir%umstan%es" the petitionerRs sales of the several lots formin' part of his rental business %annot be %hara%teri8ed as other than sales of non.%apital assets. The sales %on%luded on installment basis of the subdivided lots %omprisin' Fot ;H do not deserve a different %hara%teri8ation for tax purposes. Cir%umstan%es sho# that he #as en'a'ed in the real estate business This Court notes" ho#ever" that in orderin' the petitioner to pa& the defi%ien%& in%ome tax" the Tax Court also re-uired him to pa& a 53 sur%har'e plus :3 monthl& interest. In our opinion this additional re-uirement should be eliminated be%ause the petitioner relied in 'ood faith upon opinions rendered b& no less than the hi'hest offi%ials of the 9ureau of Internal Revenue" in%ludin' the Commissioner himself. C$ina -an/in' C rp v CA >ometime in :H20" petitioner China 9an in' Corporation made a 533 e-uit& investment in the Airst C9C Capital (Asia) Ftd." a Don' on' subsidiar& en'a'ed in finan%in' and investment #ith Odeposit.ta in'O fun%tion. The investment amounted to P:L";;B"25:.20" %onsistin' of :0L"000 shares #ith a par @alue of P:00 per share. In the %ourse of the re'ular examination of the finan%ial boo s and investment portfolios of petitioner %ondu%ted b& Bangko &entral in :H2L" it #as sho#n that Airst C9C Capital (Asia)" Ftd." has be%ome insolvent. 0ith the approval of Bangko &entral" petitioner #rote.off as bein' #orthless its investment in Airst C9C Capital (Asia)" Ftd." in its :H2B In%ome Tax Return and treated it as a bad debt or as an ordinar& loss dedu%tible from its 'ross in%ome. Respondent Commissioner of internal Revenue disallo#ed the dedu%tion and assessed petitioner for in%ome tax defi%ien%& in the amount of P2"533"3;2.0<" in%lusive of sur%har'e" interest and %ompromise penalt&. The disallo#an%e of the dedu%tion #as made on the 'round that the investment should not be %lassified as bein' O#orthlessO and that" althou'h the Don' on' 9an in' Commissioner had revo ed the li%ense of Airst C9C Capital as a Odeposit.tapin'O %ompan&" the latter %ould still exer%ise" ho#ever" its finan%in' and investment a%tivities. Assumin' that the se%urities had indeed be%ome #orthless" respondent Commissioner of Internal Revenue held the vie# that the& should then be %lassified as O%apital loss"O and not as a bad debt expense there bein' no indebtedness to spea of bet#een petitioner and its subsidiar&. Petitioner %ontested the rulin' of respondent Commissioner before the CTA. The tax %ourt sustained the Commissioner" holdin' that the se%urities had not indeed be%ome #orthless and ordered petitioner to pa& its defi%ien%& in%ome tax for :H2B of P2"533"3;2.0< plus ;03 interest per annum until full& paid. 0hen the de%ision #as appealed to the Court of Appeals" the latter upheld the CTA. In its instant petition for revie# on certiorari" petitioner ban assails the CA de%ision. The petition must fail.

The %laim of petitioner that the shares of sto% in -uestion have be%ome #orthless is based on a Profit and Foss A%%ount for the Cear.?nd 3: 4e%ember :H2B" and the re%ommendation of Bangko &entral that the e-uit& investment be #ritten.off due to the insolven%& of the subsidiar&. 0hile the matter ma& not be indubitable (%onsiderin' that %ertain %lasses of intan'ibles" li e fran%hises and 'ood#ill" are not al#a&s 'iven %orrespondin' values in finan%ial statements" there ma& reall& be no need" ho#ever" to 'o of len'th into this issue sin%e" even to assume the #orthlessness of the shares" the dedu%tibilit& thereof #ould still be nil in this parti%ular %ase. At all events" the Court is not prepared to hold that both the tax %ourt and the appellate %ourt are utterl& devoid of substantial basis for their o#n fa%tual findin's. >ub=e%t to %ertain ex%eptions" su%h as the %ompensation in%ome of individuals and passive in%ome sub=e%t to final tax" as #ell as in%ome of non.resident aliens and forei'n %orporations not en'a'ed in trade or business in the Philippines" the tax on in%ome is imposed on the net in%ome allo#in' %ertain spe%ified dedu%tions from 'ross in%ome to be %laimed b& the taxpa&er. Amon' the dedu%tible items allo#ed b& the )ational Internal Revenue Code (O)IRCO) are ba" "eb!s and l sses. An e-uit& investment is a capi!al" not ordinar&" asse! of the investor the sale or ex%han'e of #hi%h results in either a %apital 'ain or a %apital loss. The 'ain or the loss is r"inar& ;$en the propert& sold or ex%han'ed is n ! a %apital asset. A %apital asset is defined ne'ativel& in >e%tion 33(:) of the )IRC, vi( (:) Capital assets. . The term R%apital assetsR means propert& held b& the taxpa&er (#hether or not %onne%ted #ith his trade or business)" but does not in%lude sto% in trade of the taxpa&er or other propert& of a ind #hi%h #ould properl& be in%luded in the inventor& of the taxpa&er if on hand at the %lose of the taxable &ear" or propert& held b& the taxpa&er primaril& for sale to %ustomers in the ordinar& %ourse of his trade or business" or propert& used in the trade or business" of a %hara%ter #hi%h is sub=e%t to the allo#an%e for depre%iation provided in subse%tion (f) of se%tion t#ent&.nine, or real propert& used in the trade or business of the taxpa&er.7 Thus" shares of sto% , li e the other se%urities defined in >e%tion ;0(t) of the )IRC" #ould be r"inar& asse!s onl& to a "ealer in securi!ies r a pers n en'a'e" in !$e purc$ase an" sale ), r an ac!ive !ra"er J) r $is ;n acc un!H in, securi!ies. >e%tion ;0(u) of the )IRC defines a dealer in se%urities thus/ O(u) The term Rdealer in se%uritiesR means a mer%hant of sto% s or se%urities" #hether an individual" partnership or %orporation" #ith an established pla%e of business" re'ularl& en'a'ed in the pur%hase of se%urities and their resale to %ustomers, that is" one #ho as a mer%hant bu&s se%urities and sells them to %ustomers #ith a vie# to the 'ains and profits that ma& be derived therefrom.O In the hands" ho#ever" of another #ho holds the shares of sto% b& #a& of an investment" the shares to him #ould be capi!al asse!s. 0hen the s$ares $el" b& suc$ inves! r bec #e ; r!$less, !$e l ss is "ee#e" ! be a l ss )r # !$e sale r e%c$an'e ) capi!al asse!s. >e%tion ;H(d)(<)(9) of the )IRC states/

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O(9) >e%urities be%omin' #orthless. . If se%urities as defined in >e%tion ;0 be%ome #orthless durin' the taxO &ear and are %apital assets" the loss resultin' therefrom shall" for the purposes of his Title" be %onsidered as a loss from the sale or ex%han'e" on the last da& of su%h taxable &ear" of %apital assets.O The above provision %onve&s that the loss sustained b& the holder of the se%urities" #hi%h are %apital assets (to him)" is to be treated as a capi!al l ss as i) incurre" )r # a sale r e%c$an'e !ransac!i n. A %apital 'ain or a %apital loss normall& re-uires the %on%urren%e of t#o %onditions for it to result/ (:) There is a sale or ex%han'e, and (;) the thin' sold or ex%han'ed is a %apital asset. 0hen se%urities be%ome #orthless" there is stri%tl& no sale or ex%han'e but the la# deems the loss an&#a& to be Oa loss from the sale or ex%han'e of %apital assets.7A similar ind of treatment is 'iven" b& the )IRC on the retirement of %ertifi%ates of indebtedness #ith interest %oupons or in re'istered form" short sales and options to bu& or sell propert& #here no sale or ex%han'e stri%tl& exists. In these %ases" the )IRC dispenses" in effe%t" #ith the standard re-uirement of a sale or ex%han'e for the appli%ation of the %apital 'ain and loss provisions of the %ode. Capi!al l sses are all ;e" ! be "e"uc!e" nl& ! !$e e%!en! ) capi!al 'ains, i.e., 'ains "erive" )r # !$e sale r e%c$an'e ) capi!al asse!s, an" n ! )r # an& !$er inc #e ) !$e !a%pa&er. In the %ase at bar" Airst C9C Capital (Asia)" Ftd." the investee %orporation" is a subsidiar& %orporation of petitioner ban #hose shares in said investee %orporation are not intended for pur%hase or sale but as an investment. 5n-uestionabl& then" an& loss therefrom #ould be a %apital loss" not an ordinar& loss" to the investor. >e%tion ;H(d)(<)(A)" of the )IRC expresses/ O(A) Fimitations. . Fosses from sales or ex%han'es of %apital assets shall be allo#ed onl& to the extent provided in >e%tion 33.O The pertinent provisions of >e%tion 33 of the )IRC referred to in the aforesaid >e%tion ;H(d) (<)(A)" read/ O>e%tion 33. Capital 'ains and losses. . 6x x x xxx x x x.

The ex%lusionar& %lause found in the fore'oin' text of the la# does not in%lude all forms of se%urities but spe%ifi%all& %overs onl& b n"s, "eben!ures, n !es, cer!i)ica!es r !$er evi"ence ) in"eb!e"ness, ;i!$ in!eres! c up ns r in re'is!ere" ) r# " #hi%h are the instruments of %redit normall& dealt #ith in the usual lendin' operations of a finan%ial institution. ?-uit& holdin's %annot %ome %lose to bein'" #ithin the purvie# of O evi"ence ) in"eb!e"nessO under the se%ond senten%e of the afore-uoted para'raph. @eril&" it is for a li e thesis that the loss of petitioner ban in its e9ui!& in ves!#en! in !$e H n'/ n' subsi"iar& %annot also be dedu%tible as a bad debt. The shares of sto% in -uestion do not %onstitute a loan extended b& it to its subsidiar& (Airst C9C Capital) or a debt sub=e%t to obli'ator& repa&ment b& the latter" essential elements to %onstitute a bad debt" but a lon' term investment made b& C9C. *ne other item. >e%tion 3<(%)(:) of the )IRC " states that the entire amount of the 'ain or loss upon the sale or ex%han'e of propert&" as the %ase may be" shall be rec 'ni*e". The %omplete text reads/ 6>?CTI*) 3<. 4etermination of amount of and re%o'nition of 'ain or loss.. O(a) Computation of 'ain or loss. . The 'ain from the sale or other disposition of propert& shall be the ex%ess of the amount reali8ed therefrom over the basis or ad=usted basis for determinin' 'ain and the loss shall be the ex%ess of the basis or ad=usted basis for determinin' loss over the amount reali8ed. The amount reali8ed from the sale or other disposition of propert& shall be to sum of mone& re%eived plus the fair mar et value of the propert& (other than mone&) re%eived. (As amended b& ?.*. )o. 3B) O(b) 9asis for determinin' 'ain or loss from sale or disposition of propert&. . The basis of propert& shall be . (:) The %ost thereof in %ases of propert& a%-uired on or before Ear%h :" :H:3" if su%h propert& #as a%-uired b& pur%hase, or O(;) The fair mar et pri%e or value as of the date of a%-uisition if the same #as a%-uired b& inheritan%e, or O(3) If the propert& #as a%-uired b& 'ift the basis shall be the same as if it #ould be in the hands of the donor or the last pre%edin' o#ner b& #hom it #as not a%-uired b& 'ift" ex%ept that if su%h basis is 'reater than the fair mar et value of the propert& at the time of the 'ift" then for the purpose of determinin' loss the basis shall be su%h fair mar et value, or O(<) If the propert&" other than %apital asset referred to in >e%tion ;: (e)" #as a%-uired for less than an ade-uate %onsideration in mone& or mone&s #orth" the basis of su%h propert& is (i) the amount paid b& the transferee for the propert& or (ii) the transferorRs ad=usted basis at the time of the transfer #hi%hever is 'reater. O(5) The basis as defined in para'raph (%) (5) of this se%tion if the propert& #as a%-uired in a transa%tion #here 'ain or loss is not re%o'ni8ed under para'raph (%) (;) of this se%tion. (As amended b& ?.*. )o. 3B) 6(%) ?x%han'e of propert&.

O(%) Fimitation on %apital losses. . . sses )r # sales r e%c$an'e ) capi!al asse!s s$all be all ;e" nl& ! !$e e%!en! ) !$e 'ains )r # suc$ sales r e%c$an'es . If a ban or trust %ompan& in%orporated under the la#s of the Philippines" a substantial part of #hose business is the re%eipt of deposits" sells an& bond" debenture" note" or %ertifi%ate r !$er evi"ence ) in"eb!e"ness issued b& an& %orporation (in%ludin' one issued b& a 'overnment or politi%al subdivision thereof)" ;i!$ in!eres! c up ns r in re'is!ere" ) r# " an& loss resultin' from su%h sale shall not be sub=e%t to the fore'oin' limitation an shall not be in%luded in determinin' the appli%abilit& of su%h limitation to other losses.7

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O(:) Jeneral rule.. ?x%ept as herein provided" upon the sale or ex%han'e of propert&" the entire amount of the 'ain or loss" as the %ase ma& be" shall be re%o'ni8ed. O(;) ?x%eption. . )o 'ain or loss shall be re%o'ni8ed if in pursuan%e of a plan of mer'er or %onsolidation (a) a %orporation #hi%h is a part& to a mer'er or %onsolidation ex%han'es propert& solel& for sto% in a %orporation #hi%h is" a part& to the mer'er or %onsolidation" (b) a shareholder ex%han'es sto% in a %orporation #hi%h is a part& to the mer'er or %onsolidation solel& for the sto% in another %orporation also a part& to the mer'er or %onsolidation" or (%) a se%urit& holder of a %orporation #hi%h is a part& to the mer'er or %onsolidation ex%han'es his se%urities in su%h %orporation solel& for sto% or se%urities in another %orporation" a part& to the mer'er or %onsolidation. O)o 'ain or loss shall also be re%o'ni8ed if propert& is transferred to a %orporation b& a person in ex%han'e for sto% in su%h %orporation of #hi%h as a result of su%h ex%han'e said person" alone or to'ether #ith others" not ex%eedin' four persons" 'ains %ontrol of said %orporation/ Provided" That sto% s issued for servi%es shall not be %onsidered as issued in return of propert&.O The above la# should be ta en #ithin %ontext on the 'eneral sub=e%t of the determination" and re%o'nition of 'ain or loss, it is not pre%lusive of" let alone renders %ompletel& in%onse-uential" the more spe%ifi% provisions of the %ode. Thus" pursuant" to the same se%tion of the la#" no su%h re%o'nition shall be made if the sale or ex%han'e is made in pursuan%e of a plan of %orporate mer'er or %onsolidation or" if as a result of an ex%han'e of propert& for sto% s" the ex%han'er" alone or to'ether #ith others not ex%eedin' four" 'ains %ontrol of the %orporation. Then" too" ho# the resultin' 'ain mi'ht be taxed" or #hether or not the loss #ould be dedu%tible and ho#" are matters properl& dealt #ith else#here in various other se%tions of the )IRC. At all events" it ma& not be amiss to on%e a'ain stress that the basi% rule is still that an& capi!al l ss can be "e"uc!e" nl& )r # capi!al 'ains under >e%tion 33(%) of the )IRC. In sum . (a) The e-uit& investment in shares of sto% held b& C9C of approximatel& 533 in its Don' on' subsidiar&" the Airst C9C Capital (Asia)" Ftd." is not an indebtedness" and it is a capi!al" not an ordinar&" asse!. (b) Assumin' that the e-uit& investment of C9C has indeed be%ome O#orthless"O the loss sus!aine" is a capi!al, not an ordinar&" l ss. (%) The %apital loss sustained b& C9C %an onl& be dedu%ted from %apital 'ains if an& derived b& it durin' the same taxable &ear that the se%urities have be%ome O#orthless.O ,ERGER + CONSO.IDATION CIR v Ru)in This is a petition for revie# on certiorari of the CTA de%ision #hi%h absolved petitioners from liabilit& for %apital 'ains tax on sto% s re%eived b& them from ?astern Theatri%al" In%. The Rufinos #ere ma=orit& sto% holders of ?astern Theatri%al Co." In% (hereinafter *ld ?TC) #hi%h had a %orporate term of ;5 &ears" #hi%h terminated on Kanuar& ;5" :H5H" president of

#hi%h #as ?rnesto Rufino. *n 4e%ember 2" :H52" the ?astern Theatri%al Co" In%. (hereinafter )e# ?TC" #ith a %orporate term of 50 &ears) #as or'ani8ed" and the Rufinos #ere also the ma=orit& sto% holders of the %orporation" #ith @i%ente Rufino as the Jeneral. Eana'er. 9oth ?TCs #ere en'a'ed in the same business. *ld ?TC held a sto% holder1s meetin' to mer'e #ith the )e# ?TC on 4e%ember :B" :H52 to %ontinue its business after the end of *ld ?TC1s %orporate term. The mer'er #as authori8ed b& a board resolution. It #as expressl& de%lared that the mer'er #as ne%essar& to %ontinue operatin' the Capitol and F&ri% Theaters in Eanila even after the expiration of %orporate existen%e" to preserve both its boo in' %ontra%ts and to uphold its %olle%tive bar'ainin' a'reements. Throu'h the t#o Rufinos (?rnesto and @i%ente)" a 4eed of Assi'nment #as exe%uted" #hi%h %onve&ed and transferred all the business" propert&" assets and 'ood #ill of the *ld ?TC to the )e# ?TC in ex%han'e for s$ares ) s! c/ ) !$e la!!er to be issued to the shareholders at the ra!e ) ne s! c/ ) r eac$ s! c/ $el" in the *ld ?TC. The 4eed #as to retroa%t from Kanuar& :" :H5H. )e# ?TC1s 9oard approved the mer'er and the 4eed of Assi'nment on Kanuar& :;" :H5H and all %han'es dul& re'istered #ith the >?C. The 9IR" after examination" de%lared that the mer'er #as not underta en for a bona fide business purpose but onl& to avoid liabilit& for the capital gains tax on the ex%han'e of the old for the ne# shares of sto% . De then imposed defi%ien%& assessments a'ainst the private respondents" the Rufinos. The Rufinos re-uested for a re%onsideration" #hi%h #as denied. Therefore" the& elevated their matter to the CTA" #ho reversed the =ud'ment of the CIR" sa&in' that the& found that there #as 6no taxable 'ain derived from the ex%han'e of old sto% s simpl& for ne# sto% s for the )e# Corporation7 be%ause it #as pursuant to a valid plan of reor'ani8ation. The CIR raised it to the >C on petition for revie# on certiorari. Issue5 0*) there #as a valid mer'er and that there #as no taxable 'ain derived therefromUCES, !$e CTA ;as c rrec! in rulin' !$a! !$ere 4AS a #er'er an" !$a! n !a%able 'ain ;as "erive". CTA "ecisi n is AFFIR,ED.

Ra!i nale5 @alidit& of transfer In support of its ar'ument that the Rufinos #ere tr&in' to avoid the pa&ment of %apital 'ains tax" the CIR said that the )e# ?TC did not a%tuall& issue sto% s in ex%han'e for the properties of the *ld ?TC. The in%rease in %apitali8ation onl& happened in Ear%h :H5H" or 3B da&s after the *ld ?TC expired. Prior to re'istration" the )e# ?TC %ould not have validl& performed the transfer. The >C ruled that the retroa%tivit& of the 4eed of Assi'nment %ured the defe%t and there #as no impediment. Bona Fide 9usiness Purpose The %riterion of the la# is that the purpose of the mer'er must be for a bona fide business purpose and not for the purpose of es%apin' taxes. The %ase of Helvering v. <regory stated that a mere 6operation havin' no business or %orporate purposeUa mere devise #hi%h put on the form of a %orporate reor'ani8ation as a dis'uise for %on%ealin' its real %hara%ter and the sole ob=e%t and a%%omplishment of #hi%h #as the %onsummation of a pre%on%eived plan" not to reor'ani8e a business but to transfer a par%el of %orporate shares.7 0hen the %orporation %reated is nothin' more than a %ontrivan%e" there is no le'itimate business purpose. The Court states that there is no su%h furtive intention in this

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%ase. In fa%t" the )e# ?TC %ontinues to operate the Capitol and F&ri% movie theaters even up to ;B &ears after the mer'er. There is as &et no dissolution" so the Rufinos haven1t 'ained an& benefit &et from the mer'er" #hi%h ma es them no more liable than the time the mer'er too pla%e. T$e ' vern#en!8s re#e"&/ The mer'er merel& deferred the pa&ment for taxes until the future" #hi%h the 'overnment ma& assert later on #hen 'ains are reali8ed and benefits are distributed amon' the sto% holders as a result of the mer'er. The taxes are not forfeited but merel& postponed and ma& be imposed at the proper time later on. -USINESS PURPOSE Gre' r& v Helverin' Petitioner Jre'or& #as the o#ner of all the sto% of 5nited Eort'a'e Corporation" #hi%h held amon' its assets :"000 shares of the Eonitor >e%urities Corporation. In order to pro%ure a transfer of these shares to herself and diminish the amount of in%ome tax #hi%h #ould result from a dire%t transfer b& #a& of dividend" she sou'ht to brin' about a Rreor'ani8ationR under se%tion ::;(') of the Revenue A%t of :H;2. Averill Corporation #as or'ani8ed under the la#s of 4ela#are. Three da&s later" the 5nited Eort'a'e Corporation transferred to the Averill Corporation the :"000 shares of Eonitor sto% " for #hi%h all the shares of the Averill Corporation #ere issued to the petitioner. >ubse-uentl&" Averill Corporation #as dissolved" and li-uidated b& distributin' all its assets" namel&" the Eonitor shares" to the petitioner. )o other business #as ever transa%ted" or intended to be transa%ted" b& that %ompan&. Petitioner thereafter paid tax on the %apital net 'ains #hen she sold her shares. The Commissioner of Internal Revenue" bein' of opinion that the reor'ani8ation attempted #as #ithout substan%e and must be disre'arded" held that petitioner #as liable for a tax as thou'h the 5nited %orporation had paid her a dividend %onsistin' of the amount reali8ed from the sale of the Eonitor shares. Issue5 0$) there had been a 6reor'ani8ation1 #ithin the meanin' of the Revenue A%t of :H;2 and therefore ma e petitioner Jre'or& liable onl& to a tax on the %apital net 'ain for the sale of his shares of sto% s under the Averill Corporation and not tax on the dividends. )* Hel"5 The =ud'ment is AAAIRE?4. Ra!i nale5 >e%tion ::; of the Revenue A%t of :H;2 (;L 5>CA ;::;) deals #ith the sub=e%t of 'ain or loss resultin' from the sale or ex%han'e of propert&. >u%h 'ain or loss is to be re%o'ni8ed in %omputin' the tax" ex%ept as provided in that se%tion.

G&ec. !!$. ... Jg" 2istribution of &tock on 3eorgani(ation. .f there is distributed, in pursuance of a plan of reorgani(ation, to a shareholder in a corporation a party to the reorgani(ation, stock or securities in such corporation or in another corporation a party to the reorgani(ation, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock of securities shall be recogni(ed. ... GJ!" The term Greorgani(ationG means ... JB" a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred. ... G A transfer made Rin pursuan%e of a plan of reor'ani8ationR (se%tion ::;(') of %orporate business, and not a transfer of assets b& one %orporation to another in pursuan%e of a plan havin' no relation to the business of either" as plainl& is the %ase here. Puttin' aside" then" the -uestion of motive in respe%t of taxation alto'ether" and fixin' the %hara%ter of the pro%eedin' b& #hat a%tuall& o%%urred" #hat do #e find] >impl& an operation havin' no business or %orporate purpose.a mere devi%e #hi%h put on the form of a %orporate reor'ani8ation as a dis'uise for %on%ealin' its real %hara%ter" and the sole ob=e%t and a%%omplishment of #hi%h #as the %onsummation of a pre%on%eived plan" not to reor'ani8e a business or an& part of a business" but to transfer a par%el of %orporate shares to the petitioner. )o doubt" a ne# and valid %orporation #as %reated. 9ut that %orporation #as nothin' more than a %ontrivan%e to the end last des%ribed. It #as brou'ht into existen%e for no other purpose, it performed" as it #as intended from the be'innin' it should perform" no other fun%tion. 0hen that limited fun%tion had been exer%ised" it immediatel& #as put to death. In these %ir%umstan%es" the fa%ts spea for themselves and are sus%eptible of but one interpretation. The #hole underta in'" thou'h %ondu%ted a%%ordin' to the terms of subdivision (9)" #as in fa%t an elaborate and devious form of %onve&an%e mas-ueradin' as a %orporate reor'ani8ation" and nothin' else. The rule #hi%h ex%ludes from %onsideration the motive of tax avoidan%e is not pertinent to the situation" be%ause the transa%tion upon its fa%e lies outside the plain intent of the statute. To hold other#ise #ould be to exalt artifi%e above realit& and to deprive the statutor& provision in -uestion of all serious purpose.

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